China's Guangdong Zhenrong agrees to rescue deal for Titan Petrochemicals
Chinese trader Guangdong Zhenrong Energy will invest over $207 million to take a majority stake in Hong Kong-listed storage operator Titan Petrochemicals, the latter said Wednesday, Platts reports.
The bulk of the funds comprise a $145 million buyout of the existing stake held by US private equity company Warburg Pincus through its subsidiary Saturn Petrochemical Holdings, which holds 555 million preference shares in Titan. This represents about 7.1% of its total issued share capital, Titan said last month.
Guangdong Zhenrong will also subscribe to seven billion new Titan shares for HK$175 million ($22.6 million), giving it a 90% stake in the company, a spokeswoman for Titan said. The subscription agreement was inked on August 1 and the funds will be used to repay Titan bondholders and provide working capital.
In addition, Guangdong Zhenrong will also provide a minimum $40 million in interim financing to Titan's Chinese storage operations. Upon successful acquisition of Warburg Pincus' stake, Guangdong Zhenrong will sell it back to Titan at the same price of $145 million in the form of new convertible bonds but a time frame has not been set for this transaction, the spokeswoman said.
Guangdong Zhenrong's offer was first announced last month, providing a rescue package to Titan, which is facing liquidation lawsuits filed by Warburg Pincus in Bermuda and Hong Kong.
The Titan spokeswoman said Guangdong Zhenrong will likely discuss its offer with potential liquidators instead of Warburg Pincus, whose court case for liquidators to be appointed will be heard in Hong Kong on August 16.
Warburg held a conference call with Titan bondholders Wednesday briefing them on its proceedings. Titan had on August 3 said that given Guangdong Zhenrong's offer the majority of its bondholders were not in favor of liquidation proceedings.
"Warburg's concern is that the company has clearly been insolvent for many months. They were unable to pay back their bond in March and there's been very little progress made," said a source involved in the matter.
"They think there are many issues with the overall transparency and management of the company and credibility of management," he said, adding that Warburg had previously sued Titan over unauthorized guarantees amounting to $200 million made to external entities without the US company's knowledge or approval. In addition, Titan owes Warburg about $250 million and will be liable for fees incurred in the current lawsuits.
"They feel it's very critical to have an independent court-appointed liquidator to really understand what the current situation of Titan is, and to assess all of the available alternatives that there may be for restructuring the company or realizing value for creditors," the source added.
Titan primarily owns storage facilities in Guangdong, Fujian, Shanghai and Shandong along China's eastern coast and operates some floating storage in Singapore and Malaysia. It divested its oil tanker fleet in 2010 because of volatile shipping demand following the global financial crisis.
"The proposed investment will provide much needed financial support to the company to facilitate its debt restructuring proposal," Titan said in a statement.
In the same statement, a representative for Guangdong Zhenrong Energy said: "Our businesses are highly complementary and we are keen to establish a platform to ensure Titan achieves its full long-term potential."
Guangdong Zhenrong is partly owned by Chinese state trader Zhuhai Zhenrong, which is one of two buyers responsible for procuring China's crude oil imports from Iran.
The source, however, said that Warburg was not seriously considering Guangdong Zhenrong's offer at the moment. "It's unclear where the funding would come from. The parent company ... is subject to US sanctions regarding business in Iran so that may complicate the ability of anyone to transact with them. So from Warburg's perspective this doesn't seem to be a very credible proposal at this point."
The deal is subject to a number of legal, regulatory and shareholder approvals.
