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Methodology | Corporate Rating | Jun-21
Sector Study | Distribution | Gas | Jun-22
LRA Maintains the Entity Ratings of Litro Gas Lanka Limited
The global pandemic has amplified deep-rooted economic issues for most of the developing economies. Sri Lanka has been no exception. The country adopted strategies of reduction in taxes and higher public spending and subsidies in 2019. Challenges began to surface in the backdrop of two pandemic-triggered repercussions: i) shrinking foreign currency reserves, and, ii) the global commodity super-cycle resulting in very high inflation. The country's foreign currency inflows, besides borrowing from the international market, are majorly dependent on tourism activities and workers' remittances. Tourist arrivals plunged following the pandemic-induced restrictions and only recently started to pick up. Meanwhile, a ~61% YoY decline was recorded in workers remittances in Jan'22 from Jan'21, despite an increase in the number of migrant workers. The countrys trade balance deteriorated resulting in a deficit of USD~8bln in CY21, a rise of ~35% from the previous year as growth in imports outpaced exports. This coupled with low inflows, widened the current account deficit and the country’s foreign currency reserves plunged dramatically to just USD~1.9bln at End-March’2022 (CY19: USD~8bln), exerting massive pressure on the local currency. The Lankan Rupee has devalued by ~50% till March'22 from March'21. The country's CCPI (inflation) was reported at ~14% in Jan'22 and ~19% in Mar'22. The central bank, in response, tightened the monetary policy by increasing policy rate by 700 bps with SDFR and SLFR standing at record levels of 13.5% and 14.5%, respectively. The rating reflects Litro Gas's established position as the leader in Liquid Petroleum Gas (LPG) market. While the Sponsors financial muscle provides comfort to the ratings, the current economic turmoil is adversely impacting the risk matrix of the company on a multiple facets. One of the key risks is the steep depreciation of currency, which has exorbitantly escalated the import cost of LPG, making it difficult to fully pass on the impact to end consumers. On the other hand, Litro's close monitoring controls by the Government keeps its prices in check, further squeezing its profitability margins. This, along with non-availability of USD, have impacted Litro's operations significantly on account of depleting gas stocks due to insufficient funds to import LPG into the country. This has also triggered instability at the management level as the Chairman and CEO, Mr. Theshara Jayasinghe, recently submitted resignation from his office on 15th April - 2022, in the backdrop of the current crisis.
The rating is dependent upon the out-turn of current economic plight in the short-term. Any delay in arrestation of gas crisis would be considered negative for the rating. The rating is also kept on Watch; to reflect close surveillance of the unfolding of events and their impact on the risk profile of the company. Operational revival, management stability and sustenance of profits are pertinent to keep the rating intact. Any further deterioration or substantial delay in revival of operations would lead to a downward revision in the rating.
Litro Gas Lanka Limited is a limited liability company incorporated under the Companies Act, No. 07 of 2007 of Sri Lanka. The Company was established in 1872 and is currently owned by the Sri Lanka Insurance Corporation (SLIC). Litro Gas is principally involved in importation, processing, storing, distributing and sale of Liquid Petroleum Gas (LPG). The CEO and Chairman, Mr. Theshara Jayasinghe is a well-known business professional with a track record of over 15 years in
entrepreneurial, local and multinational organizations. The overall control of Litro Gas vests in the four member Board of Directors, which apart from the CEO/Chairman comprises of Non- Executive Directors.