Lub-rref to invest IPO funds in new refinery instead of modernising plant

Lub-rref (Bangladesh) Ltd has changed its mind regarding utilising public investors' money it collected last year.

The lubricant re-refiner and blender had initially planned to modernise its existing lubricant recycling plant at the Chattogram city, co-located to its lubricant blending plant, with nearly two-thirds of its Tk150 crore fund from initial public offering (IPO).

As the energy regulation now demands the re-refining plant to be separated from the blending facility, the company had to focus on the new project located at Julda on the bank of the River Karnaphuli.

"The new project had been a part of our expansion plan. Now we have just changed the mode of utilisation of investors' money," said Mofijur Rahaman, chief financial officer (CFO) of Lub-rref.

The utilisation plan is subject to approval by the shareholders and the securities regulator.

The new project would better help Lub-rref increase its revenue, profits and also to gain an edge in lubricant business, said the CFO, as the new re-recycling plant would produce better quality Group-2 base oil abundantly that can be consumed in own blending plant and also the surplus amount will be sold to other blenders home and abroad.

Julda Industrial Theme Park

Lub-rref had previously acquired 16 acres of land on the bank of Karnaphuli and recently, it has accomplished the land filling for its dream industrial complex named "Julda Industrial Theme Park".

The project will include a jetty, a tank terminal, a modern base oil refinery, a hydrogen plant and a specialised bitumen plant.

Lub-rref's Head of Operations Naim Siddiki told this correspondent during a site visit a year ago, "The new industrial complex will help us have a manufacturing ecosystem where a unit will supply another one's raw material with its products or by-products and work as each other's forward or backward linkages to offer the company a great convenience in sourcing and selling."

CFO Mofijur Rahaman said on Tuesday, "Now we have finalised a Tk1,283 crore investment plan at the complex and the IPO fund's remaining Tk98 crore will be a part of that."

With one-third of the IPO fund, the company has already paid off its expensive debts to save some in interest expense.

Recognised as a green project, the company is already eligible for around Tk400 crore in subsidised loans from the Green Technology Fund (GTF) refinanced by the Bangladesh Bank and the loan would cost the company 4.5% annual interest.

The company will take around Tk500 crore loans from commercial banks and the remaining part will be financed from the company's equity, including that provided by capital market investors.

Expecting to begin construction at the end of this year, Lub-rref is planning to begin production there in 2024.

New refinery

Lub-rref is the only company in the private sector to produce base oil.

It recycles used lubricants and currently consumes the re-refined Group-1 base oil for its emerging brand BNO.

The new refinery too will recycle lubricants to yield superior Group-2 base oil and it will have an annual capacity to produce 52,000 tonnes of base oil.

Of that, BNO itself would blend 25-30 thousand tonnes in 2025 as the company is planning to acquire 20% market share by volume then, up from existing 8%.

The remaining half is expected to be sold to other blenders and the company is counting on base oil exports as it is expecting a bonded warehouse facility.

Recycled base oil is popular among many blenders worldwide and they pay a better price, said Mofijur Rahaman.

His company has already entered a technological collaboration agreement with California, USA-based Chemical Engineering Partners (CEP), to excel in lubricant manufacturing.

But, he is expecting Tk450 crore in annual revenue from the new refinery. 

The new re-refinery would need an investment of Tk600 crore.

The new refinery would help the company improve its gross profit margin in lubricant business to over 36% from the existing margin of less than 32%, the CFO counts on.

The jetty and tank terminal

Julda Industrial Theme Park will have a private jetty that would enable the company to load and unload its own goods in bulk, while the unutilised capacity might be used by nearby factories for some rent.

A tank terminal with 1 lakh tonnes of liquid storage capacity will be built there mainly to store petrochemical liquids and as the company would use around 20% of the capacity, the remaining capacity would be rented to other companies for an expected annual rental income of more than Tk50 crore.

Storage capacity has been proved to be a game changer for companies during volatility in the global energy market as one can procure more when price is low, said Mofijur.

Bitumen plant and hydrogen plant

More than Tk100 crore would be invested for a bitumen plant in the complex and the raw material would come from the re-refinery. The plant would produce 30,000 tonnes of specialised bitumen a year.

The refinery would need hydrogen gas for its hydro fractionation process and the company itself would set up a plant to cater the demand for the industrial gas.

"Our capacity would be to produce 1,000 cubic metres of hydrogen per hour and the planned scale of the refinery would not consume the entire gas," said the CFO. "We can sell nearly one-third of the hydrogen to others."

Lub-rref and the local market

Lub-rref began oil recycling and blending in 2006. BNO has already emerged as an affordable and reliable local brand.

It is also a big name in the transformer oil segment as it serves nearly half of the market that has grown at a 20-30% rate a year over the last one decade amid a rapid electrification across the country.

Despite having nearly 8% market share of the local lubricant market in terms of volume, Lub-rref earns a much less share of the industry revenue – only Tk180 crore of around Tk5,000 crore.

It is due to the company's focus on affordable products and it is trying to improve in this area through producing and selling higher value products, said Mofijur.

Lubricant market in Bangladesh is growing at a 3-5% rate in line with the growth in the number of all types of engines and currently 60-70% of the industry sales goes to the automotive sector while the remaining 30-40% are consumed by industrial customers, he estimates.