Battle for Titan assets takes new turn

A drawn-out ownership fight over the fuel storage assets of Chinese debt-troubled fuel trading and logistics firm Titan Petrochemicals has taken a new twist.
A person close to Titan and its potential buyer, partially state-owned fuel and metals trader Guangdong Zhenrong Energy (GZE), claimed a joint venture between United States-based private equity firm Warburg Pincus and SouthernPec, a Guangzhou-based rival of Titan, has failed to complete a deal to sell the storage assets to GZE.
The assets, consisting of four onshore fuel storage facilities in the strategic ports of Guangzhou, Quanzhou in Fujian province, Shanghai and Yantai in Shandong province, were the most profitable and valuable operations of Titan. The company also engaged in vessel fuel supply, offshore fuel storage, oil transport, and shipbuilding and repair.
The storage operation was set up in 2007 and was owned by StorageCo, a joint venture between Titan and Warburg. After Titan sank into financial trouble due to overly aggressive expansion during the 2008-09 global financial crisis, it was forced to restructure its US$315 million debt raised in 2005.
Much of Titan’s aggressive expansion and debt piling was presided over by former Chief Executive Barry Cheung Chun-yuen. He is chairman of the embattled gold and silver futures exchange Hong Kong Mercantile Exchange, which originally planned to launch fuel oil futures, a product traded, transported and stored by Titan. He was head of Titan from July 2004 to January 2008.
Sustained difficulties in the oil shipping business made Titan default in March 2012 on its repayment obligations on its restructured debt, and Warburg petitioned at a British Virgin Islands court to close StorageCo and at a Bermuda court to liquidate Titan.
GZE subsequently acquired a controlling stake in Titan, and wanted to buy the storage assets and inject the cash back into Titan after its debt was successfully restructured.
Both Warburg and GZE offered to bid for the storage assets from the liquidators. After negotiations, they agreed for Warburg and its partner SouthernPec to buy the assets and then sell them, together with Warburg’s preference shares claim on StorageCo, to GZE for US$350 million. This would give Warburg and SouthernPec a quick profit of about US$65 million, the person close to Titan and GZE said.
“But on the day the deal was supposed to be closed last December, nobody from Warburg and SouthernPec showed up in the lawyers’ office,” the person said, adding he suspected the partners might have received a better offer from a third party, likely another state-backed oil firm.
Payment for the deal has been sitting in an escrow account since December, the person said, adding Warburg and SouthernPec have been using some trivial issues as excuses not to complete the deal.
Warburg declined to comment. The case is pending arbitration at the Hong Kong International Arbitration Center. No hearing date has been set.
Meanwhile, U.S. tanker leasing firm KTL Camden may replace Warburg as early as July as the petitioner at the Bermuda Supreme Court to buy out Titan.
Titan has in recent months secured new investments of about HK$800 million (US$103.1 million) from GZE, Titan’s new chairman Zhao Xuguang, and Singapore-listed offshore oilfield services provider Falcon Energy Group, but they are subject to successful restructuring of its debt. A restructuring proposal is expected to be put forward soon by GZE.
Titan Executive Director Patrick Wong Siu-hung in April said that by the end of the year it hoped to have creditors’ demands for its liquidation set aside and release its financial results for last year, which are conditions for its shares trading resumption.
(June 3, 2013)