Lub-rref seeks approval to utilise Tk56cr IPO funds as working capital

Infographics: TBS

Lub-rref (Bangladesh) Ltd, renowned for its lubricants under the BNO brand, faces a critical challenge in sustaining its operations due to a shortage of working capital. 

The company is strategically considering utilising funds raised through its initial public offering (IPO) as working capital to address this pressing issue. This move aims to boost liquidity and ensure continuity in its business endeavours amidst the current financial constraints.

It has already submitted an application to the commission seeking support from the funds raised through its initial public offering (IPO). 

In 2021, the company successfully raised Tk150 crore from the capital market to purchase machinery and repay existing loans. From there, the company is yet to utilise Tk56 crore designated for purchase of machinery. 

However, during the IPO phase, the company had communicated its intention to utilise the funds for the modernisation of its plant.

But, within six months after the IPO, the company opted to divert the rest of the allocated funds towards a new project situated in Julda along the banks of the River Karnaphuli, deviating from the initially proposed plant modernisation plan. 

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

This decision was prompted by the unfolding impacts of the Covid-19 pandemic, the Russia-Ukraine war, and broader global economic uncertainties. The cumulative effect of these crises also led Lub-rref into a liquidity crunch. So, the company now seeks to repurpose the IPO funds as working capital to navigate the current financial turmoil. 

However, any deviation from the originally stated utilisation of IPO funds necessitates formal approval from both general shareholders and the relevant regulatory bodies. Failure to secure such approval would compel adherence to the terms outlined in the IPO prospectus.

Mofijur Rahaman, the chief financial officer (CFO) of Lub-rref, pointed out that the abrupt decline in working capital accentuated particularly on the onset of the Russia-Ukraine conflict. "This decline was aggravated when banks refrained from extending term loans to support liquidity requirements. Later, the company temporarily utilised the IPO funds to secure a term loan for the Julda project, reimbursing the amount," he added.

He said, "The base oil refinery project cost was Tk1,283 crore including Tk150 crore IPO fund. Of this project, Tk900 crore was loans and Tk750 crore foreign loans which were supposed to be used as LC for the project.

"But due to the global crisis and local liquidity shortage, the disbursement of those loans is experiencing delays," he further added. 

Given the situation, the company is now able to operate at around 30 to 40% of its normal capacity due to a shortage of raw materials. 

The CFO further emphasised on the necessity of getting the regulatory approval, noting that it would facilitate seamless business operations and enable the company to fulfil its dividend commitments to investors. 

With regulatory clearance, Lub-rref anticipates a smoother path forward in overcoming the current crisis and sustaining its operations effectively. 

Now, the company has to inject two or three times the funds to import raw materials as their prices are high globally. 

In the July to March period, the company made revenue of Tk54.44 crore, which was Tk16 crore in the same period of the previous year.

Its profit after tax stood at Tk4.07 crore and earnings per share stood at Tk0.28. 

As of 30 April 2024, sponsors and directors jointly held 35.69%, institutions 8.38%, foreign investors 0.08%, and the general public 55.85% shares in the company.

The last trading price of its shares was Tk22.20 each at the Dhaka Stock Exchange on Thursday (9 May).

Salah Uddin Mahmud is a Staff Correspondent at The Business Standard who covers the stock market, insurance and the private sector.