Byco Petroleum, which runs refinery, terminal and marketing businesses, has decided to merge into its holding company in a move aimed at integrating different parts of its petroleum supply chain.
The proposed merger – Byco Petroleum and its subsidiary Byco Terminals with Byco Oil Pakistan – was announced following a nod from its board of directors.
While no specific reason for the decision has been shared by the company, a senior official said that it will help increase efficiency of the refining plants and bring economies of scale.
Byco Petroleum Limited, which is listed on the stock exchange, has a 35,000-barrel-per-day (bpd) refinery and a marketing company with over 254 retail outlets. It also owns a liquid terminal through a wholly-owned subsidiary.
Majority stake of this entire enterprise is held by Byco Oil Pakistan, a holding company used by local and foreign sponsors to control the group.
Byco Oil, in turn, owns a 120,000-bpd refining complex. Shareholders in Byco Petroleum will probably be issued shares in Byco Oil under the merger arrangement.
“I think this merger is part of Byco’s initiative to restructure its debt. It makes sense to do it now that interest rate is low,” said Yawaruz Zaman, head of research at Shajar Capital.
Since Byco Petroleum was hit by oil price fluctuation in 2009, it has been on a difficult road to recovery. In the nine months to March 2015, Byco posted a loss of Rs1.25 billion.
The company was carrying a long-term debt of Rs13.67 billion on its books as of March 31, 2015. It is not clear how much debt is on Byco Oil’s bigger refinery.
Nevertheless, Byco has been able to increase throughput of its refining plants and increase utilisation of its terminal since February this year.
It is also vigorously following a policy of keeping its stock in trade to the minimum to avoid inventory losses, which means quicker conversion of crude oil into petroleum products and early distribution.
Byco’s share hit the upper lock of 5% – the maximum limit to which a share is allowed to move in a single day – for the second successive session on Thursday, closing at Rs29.68.
Published in The Express Tribune, July 24th, 2015.