Titan may have white knight in Zhenrong
Guangdong Zhenrong Energy, a unit of state-owned commodity trading firm Zhuhai Zhenrong, has offered to buy at least 51 per cent of debt-laden Titan Petrochemicals for up to HK$200 million, with Singaporean businessman Tsoi Tin Chun surrendering control of the troubled fuel-trading and logistics company.
Guangdong Zhenrong had signed a 'non-binding indicative letter of terms' to buy at least 51 per cent of Titan for HK$150 million to HK$200 million, Titan said.
It also intends to provide up to HK$320 million of 'interim financing' to StorageCo, a Titan unit that operates several fuel and chemical storage tank farms in Guangdong and Fujian provinces.
Guangdong Zhenrong also wants to buy private equity group Warburg Pincus' 50.1 per cent stake in StorageCo and 11.3 per cent interest in Titan for up to HK$1.13 billion.
In 2007, Warburg paid US$100 million for a 49.9 per cent stake in StorageCo and US$75 million for Titan's common and preference shares that could give it up to 18.3 per cent of the firm's enlarged share capital.
Tsoi listed his fuel trading and sea transport assets 10 years ago through the back door by injecting the assets into Gemzboh, a listed apparel maker, and rechristened it Titan.
Over the years, Titan expanded aggressively into fuel storage, building tank farms in Guangdong, Fujian and Shanghai, involving some US$1 billion of planned investment.
Between 2004 and early 2008, when Barry Cheung Chun-yuen was chief executive, Titan expanded its fuel-trading business by buying assets from Tsoi, built the three storage farms and related logistics infrastructure, and bought a ship-repair operation in Quanzhou, Fujian, from Tsoi. Cheung, a former McKinsey business consultant, is now a member of Hong Kong's new Executive Council.
While expanding its business, Titan has increased its debt load significantly. It had HK$3 billion worth of bank loans and bonds payable at the end of last year, with HK$160 million of cash and HK$1.1 billion in pledged deposits.
It tried to raise cash to meet debt obligations last year by selling its 95 per cent stake in the shipyard operation, but the buyer later sought a court order to cancel the deal.