August 8, 2012 / 11:56 AM / 6 years ago

UPDATE 1-China oil trader agrees to buy Titan as Warburg suit looms

* Proposed acquisition subject to lawsuit dismissal

* Warburg to move ahead with liquidation suit -source

* Zhenrong would buy nearly 90 pct of Titan for $23 mln

By Charlie Zhu

HONG KONG, Aug 8 (Reuters) - Chinese oil trader Guangdong Zhenrong Energy Co Ltd has agreed to buy control of Hong Kong-listed Titan Petrochemicals Group Ltd, a debt-laden shipping and oil storage company, but the deal could be derailed by a liquidation suit from U.S. private equity firm Warburg Pincus.

The acquisition will be subject to a dismissal of the Warburg suit and court approval of a Titan debt restructuring plan that has yet to be finalised, among other conditions, Titan said in a filing with the Hong Kong stock exchange on Wednesday.

Warburg, which has invested more than $215 million in Titan since 2007, views the acquisition proposal as premature and plans to move ahead with its petition to wind up Titan through a Bermuda court, a source with direct knowledge of the matter told Reuters.

The court is scheduled to hear the case on Aug. 16.

Warburg believes that obtaining court approval to hire an independent liquidator would be in the best interest of Titan’s bond holders and other creditors, said the source, who declined to be identified because he was not authorised to speak to the media on the matter.

A restructuring of the company under the supervision of an independent liquidator would be more transparent and fair to Titan’s bond holders and other creditors, the source added.

Warburg declined to comment.

Warburg filed a petition in a Bermuda court last month seeking to wind up Titan, which had assets of HK$6.4 billion at the end of last year while current liabilities reached HK$7.7 billion. Investors hold around $170 million in U.S. dollar bonds issued by Titan, which defaulted on some of the bonds due on March 19.

Warburg has also sued Titan and some of its executives in Hong Kong’s High Court for misrepresentation and breach of contract.


Under an agreement signed with Guangdong Zhenrong on Aug. 1, loss-making Titan plans to issue 7 billion new shares for HK$175 million ($22.57 million) to the oil trader, Titan said.

Guangdong Zhenrong is controlled by Zhuhai Zhenrong Co, which was hit by U.S. sanctions in January when it was described as the biggest supplier of refined petroleum products to Iran. Zhuhai Zhenrong was formerly affiliated with China’s defence industry and is now one of the country’s five biggest traders of crude oil and oil products.

The new shares, to be issued at HK$0.025 each, would represent nearly 90 percent of Titan’s enlarged share capital after the offer, Titan said.

But Zhenrong will seek to keep Titan listed by maintaining the company’s public float at no less than 25 percent of its total share capital, Titan said.

Zhenrong has also agreed to pay up to $145 million to buy Warburg Pincus’ interest in Titan’s storage companies in mainland China and to provide the storage companies with interim financing of up to $40 million.

An acquisition would allow Zhenrong to make use of Titan’s oil storage facilities in Guangdong, Fujian, Shanghai and Shandong in eastern China, a Guangdong Zhenrong official says.

Titan has suffered losses for five consecutive years after its debt-driven growth strategy came undone during a steep downturn in the shipping industry.

Shares in Titan, which has a market value of $248 million, were suspended on June 19. The stock last traded at HK$0.246, after plunging 50 percent over the previous 12 months.

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