CVO Petrochemical's share price falls again for production halt

The share price of CVO Petrochemical has dropped again, in reaction to the news that the company will not be able to resume production for an indefinite period because of raw material shortage. 

At the end of September, its share price soared by 16% to Tk134, riding on the news of the factory reopening after a suspension put in place during the novel coronavirus pandemic. But in the last two days, the share price fell by 13% because of the uncertainty over the factory reopening.

Condensate – a by-product of gas – is mined together with natural gas. All private refineries are solely dependent on Petrobangla – the government-owned oil and gas corporation – for this raw material.

Upon instructions from the Energy and Mineral Resources Division, Petrobangla had suspended the supply of condensate to all private refineries for three months – from July to September.

As a result, CVO Petrochemical had to shut down its production for three months.

A senior officer of the company told The Business Standard, "We have discussed with Petrobangla about withdrawing the suspension order, but the government authority said the condensate production did not get back on track after the lockdown that was put in place to curb the spread of the coronavirus pandemic.

"Even they (Petrobangla) did not say when the suspension would be lifted. So, our production will remain stalled for an indefinite period."

The company got listed on the Dhaka Stock Exchange (DSE) in 1990.

The government has not yet revised the decision because of the poor production of natural gas due to the novel coronavirus pandemic, said an official of Petrobangla. 

CVO Petrochemical Refinery

Of the refineries, only CVO Petrochemical Refinery is listed on the share market. In 2014, the company shifted its business from producing edible oil to refining condensate.

It entered into an agreement with the Jalalabad Gas Field to buy condensate. The agreement will expire on December 31, 2020.

The company is engaged in the production and sale of fuel like motor spirit, high-speed diesel, and mineral turpentine from natural gas condensate. The installed production capacity of the company is 150 tonnes per day.

During the first three quarters of the 2019-20 financial year, the company incurred a loss of Tk0.37 per share. During that period, its revenue dropped by 4% to Tk52.92 crore.

The company official said that due to lack of condensate supply, CVO Petrochemical would be able to utilise only 20% of its total production capacity. The company has written to the authorities several times in this regard, but no solution has been found yet.

The company paid a good dividend to its shareholders until the 2016 financial year. But in 2017, Petrobangla suddenly filed an allegation against the company. 

Petrobangla accused the company of selling condensate in the open market without refining. For that reason, Petrobangla stopped supplying condensate to the company.

Following this decision, the company was forced to stop its production and incurred a loss in 2017.

CVO Petrochemical solved this problem in 2018. But Petrobangla did not resume a sufficient supply of condensate to the company.

The company made a net profit of Tk18 crore in 2016 and paid 25% cash dividend to its shareholders. But in 2019, its net profit was only Tk31 lakh and paid a 2% dividend.

Petromax Refinery also losing business

Petromax started commercial operations in 2013. Octane is its main product, but the company also produces small quantities of diesel, petroleum, and kerosene. It buys condensate from the Rupantarita Prakritik Gas Company.

Shahjibazar Power, a sister concern of Youth Group, holds a 90% share of Petromax Refinery with an investment of Tk90 crore.

Shahjibazar Power is listed with the DSE.

In the fiscal year 2013-14, Petromax earned Tk362.35 crore and made a net profit of Tk20.59 crore. The following year, the fiscal year 2014-15, the company earned a maximum of Tk764.26 crore and made a net profit of Tk72.88 crore. Since then, its business has declined.

In the first three quarters of the 2019-20 financial year, the revenue of the company fell by 12% to Tk379.93 crore. Furthermore, it posted a loss of Tk5.12 crore from its refinery business.