Reuters – Titan in Talks to Sell Control Stake as Warburg Seeks Liquidation

Debt-laden Chinese shipping and oil storage firm Titan Petrochemicals Group Ltd., facing a lawsuit seeking its liquidation from Warburg Pincus, is in “active discussions” to sell a controlling stake. Warburg Pincus, which holds a stake of around 10%, filed a petition in a Bermuda court earlier this month seeking a winding up of Titan, whose assets totalled HK$6.4 billion ($825 million) as of the end of last year while current liabilities reached HK$7.7 billion.

(Reuters) – Debt-laden Chinese shipping and oil storage firm Titan Petrochemicals Group Ltd, facing a lawsuit seeking its liquidation from Warburg Pincus, is in “active discussions” to sell a controlling stake.

 

Titan, in which Warburg Pincus holds a stake of around 10 percent, have suffered losses for five consecutive years after its debt-driven growth strategy was unravelled by a nasty downturn in the shipping industry.

 

Warburg Pincus filed a petition in a Bermuda court earlier this month seeking a winding up of Titan, whose assets totalled HK$6.4 billion ($825 million) as of the end of last year while current liabilities reached HK$7.7 billion. The private equity firm has invested more than $215 million in Titan since 2007.

 

Titan said it received a non-binding indicative offer on Thursday to take control of the company, and it is now in talks to issue new shares to the potential investor, which it did not identify. If the shares were issued, it is likely to result in a change of control of the company, Titan said in a filing with the Hong Kong stock exchange.

 

Mainland Chinese businessman Tsoi Tin Chun stepped down this month as Titan’s chairman after building the company into a firm with oil storage, shipping and trading businesses spanning China, Singapore and Malaysia. Tsoi controls nearly 48 percent of Titan.

 

WRONG BET

 

A native of China’s Fujian province, Tsoi, 49, made a big bet on the highly cyclical oil shipping business in 2005, borrowing heavily to expand its tanker fleet. The strategy turned out to be a mistake, said sources familiar with Titan.

 

“He has a lot of good business ideas. He captured the upturn in the shipping. But shipping has big highs and big lows. He overextended himself,” said a former Titan employee with knowledge of the company’s strategy then.

 

“The problem is what to do when the cycle turns. You sell all your ships? It is a capital-intensive industry. You can’t buy quickly and sell quickly,” said the source, who declined to be identified.

 

In March 2005, with the help of Morgan Stanley and Credit Suisse, Titan issued $400 million of seven-year bonds carrying a fixed annual coupon of 8.5 percent to buy oil tankers, bunkering barges and invest in oil storage facilities in China.

 

“Our ability to issue one of the largest high-yield bonds in Asia this year testifies to our solid cash flow, correspondingly high level of debt coverage and the revenue generating nature of the assets in which we are investing,” the company said in a statement on the bond issue on March 14, 2005.

 

The shipping market plunged after 2007, and the company’s storage business in China ran into stiff competition from dominant Chinese state players like PetroChina and Sinopec Corp .

 

Heavy interest expenses ate into Titan’s finances, with the company racking up combined net losses of HK$3.5 billion from 2007 to 2011.

 

Titan defaulted on HK$825.8 million of principal and HK$35.1 million in interest due on its U.S. dollar bonds March 19. It attributed the default to the failure in selling a shipyard to a Chinese company called Grand China Logistics.

 

Grand China terminated a contract signed in late 2010 to buy Titan’s 95 percent interest in a Chinese shipyard for about HK$1.8 billion. Grand China is a unit of HNA Group, which controls Shanghai-listed Hainan Airlines .

 

Warburg Pincus’ petition to wind up Titan is expected to be heard on August 16, said the Chinese company, which went public in Hong Kong in 2002 through a backdoor listing.

 

Shares in Titan, with a market value of $248 million, were suspended on June 19 pending an announcement of price-sensitive information. The stock last traded at HK$0.246, after plunging 50 percent in the last 12 months. (By Charlie Zhu and Stephen Aldred)