LAUGFS gears up for more growth

Diversified into 15 sectors, LAUFGS has been smiling with growth for the last 10 years. With an impending IPO, Rs. 500 m resort in Chilaw and expansion plans to Bangladesh and Vietnam, the company is looking to cash in on the post-war boom.

Daily FT caught up with LAUGFS Chairman W.K.H Wegapitiya to get the inside story on these developments and get some hard hitting opinions of overall issues. Following are excerpts:

By Uditha Jayasinghe

Q: What are your views on the Shell Gas buyback?

A: As a Sri Lankan I’m very happy about the Government decision to purchase Shell. It is a national asset and should be with the people. However, when it comes to how the company will be run, I have a few reservations about the Government taking it over completely.

Ideally the Government’s task is to facilitate business by implementing the proper policy framework to strengthen the private sector so that they can engage in business. The job of the Government is not to do business. However, even if the Government divests 49% of the Shell Gas Lanka Limited stock, I don’t think that many companies would be interested simply because they would not have decision-making power.

If complete control is with the Government, then obviously investors are going to be wary. This is why even after a year has lapsed since the end of the war there is little significant foreign direct investment in Sri Lanka.

Q: So what do you believe is the Government’s role?

A: Firstly, the Government must make the right policy framework. It must ensure ease of doing business, provide a reliable set of rules and regulations that are actually followed by everyone and ensure that Government ministers do not have the power to make arbitrary rules.

We interact a lot with foreigners who are very interested in investing in Sri Lanka but are wary because they are aren’t sure if their investments are safe. They should also align policies so that business is made easier.

True, the Colombo Stock Exchange is doing well, but other than that there is little expansion happening in industries other than tourism.

The Government, especially now that it has a strong majority, should move away from populist policies and make sure that proper regulations are followed.

Q: How does good governance play into this?

A: The biggest weakness of our economy is that we run after ministers for everything. We in the private sector, however reluctantly, admit that this is a necessary evil. This should not be the case. Businesses should have the capacity to go about their work without having to deal with politicians – that is what the public sector exists for. Nonetheless, these are points that the Government needs to improve. They must leave the private sector to do their job and limit their role to being facilitators only.

Q: The Government is planning on introducing a new tax regime. What are your ideas on this?

A: Even though the prognosis for growth in Sri Lanka is very positive, we cannot become complacent. In the short-term, investors are still going to look for tax incentives when investing in Sri Lanka so the Government shouldn’t do away with all incentives immediately. Ideally, they should be phased out so that both parties can emerge winners.

Tax incentives should continue for at least two more years before investors become confident enough to enter Sri Lanka without carrots. Proper policy frameworks, as I mentioned before, include taxes and it is good for the Government to streamline these along with the overall development plans.

Q: What should the policy frameworks have?

A: Government policies should focus on economic goals not political ones. They must have economic perspectives, not political perspectives. Sri Lanka needs proper planning. One thing that we see in our history is a severe lack of comprehensive and consistent policy implementation. Plans change with each government and instead of going forward we move back several steps with every regime change. Clear goals and the dedication and leadership to reach them are what we need and the Government has every chance to provide this now.

Q: What are your future plans?

A: We are building a four star plus resort in Chilaw with 150 rooms at an investment of Rs. 500 million. The 22 acre property will kick off in December and we hope to complete building in 18 months. We decided on the location because it is just one hour from the airport and within easy reach of the cultural triangle and other popular tourist attractions.

Q: What experience have you had in this sector?

A: We have been managing two hotels down south – Emerald Bay and Temple Trees Resort – for the past two-and-a-half years. We foresaw a tourism boom with the end of the war and made plans accordingly. We have worked closely with European tour operators and they have expressed keen interest in expanding their operations in Sri Lanka.

Q: How about the energy sector?

A: With the expected economic boom, we predict that Sri Lanka will have a large need for power, especially LPG. So we want to consolidate our business locally and then branch out to Bangladesh and Vietnam in the LPG and lubricants sectors. The company has already done a lot of work in this regard and the response from our partners in these two countries has been very encouraging. We already have two subsidiaries in Australia, in car care and auto gas conversions.

Q: What are the positive lessons that you are taking abroad?

A: LAUGFS entered a very volatile industry and has grown exponentially during the last 10 years. This is a great strength to us.

The very fact that being a home-grown company we could take on a global giant and not just survive but grow has given us a lot of strength.

These are the positives that we are taking with us as we look expand into Bangladesh and Vietnam. These are both big markets and the second time that we will be establishing ourselves so we are expecting many challenges, but we are also confident that this is the right time to take this step.

Q: You have been very vocal in your opposition to the Comprehensive Economic Partnership Agreement (CEPA) with India. How do you plan to proceed in this regard?

A: Let me reiterate that we are not against trade with India; nor are we advocating protectionism. However, it must be accepted that practically, local industries in Sri Lanka must be given the chance to become stable before the economy is thrown open to competition, especially intense competition from a country as economically aggressive as India.

What we endorse is fixing up the existing Free Trade Agreement (FTA) before expanding it to CEPA and many of our policymakers as well as the businessmen agree that this would be a more pragmatic option.

I don’t think our bureaucrats are looking at this independently. There is a lot of pressure from India to push this through, but thankfully I believe that we were able to prevent signing in a hurry without proper consideration of the various implications.

We will continue to lobby against it and work with all stakeholders including politicians so that they are educated about CEPA and will not sign anything that would be detrimental to Sri Lanka.

Q: Could you tell us about the impending IPO?

A: On 20 October we will release the prospectus on the IPO and it will commence on 4 November. Each voting share will be priced at Rs. 23 and non-voting share Rs. 15. In total 22% of company shares will be sold through the IPO. The funds will be funnelled into the business plans already outlined and possibly to buy a share of Shell Gas if the Government implements the decision to divest it.

Q: LAUGFS has many dimensions. Don’t you feel that you are too diversified?

A: At the moment we are involved in 15 different sectors. This includes LPG, lubricants, petroleum, tyre manufacturing, supermarkets, vehicle emissions and hydro power. The main reason we diversified was because our core business is very volatile so we needed something that would balance out that risk.

While I agree that concentrating on the core business is important, we had to have certain safety nets in place so that we would have more stability within the company.

So of the sectors LAUGFS is in, we aren’t the market leaders, but I think that once we have a foothold we can later make it grow. Reviving the business and taking off can be done later.

Q: What is your secret for success?

A: Sincerity and hard work. Success is measured by the positive impact made on people’s lives. Most people mistake money for success, but I don’t believe that. If that is true, then drug dealers are successful businessmen. It is more about doing the right thing, making a positive impact.