US Private Equity firm, HK shipping titan may split in asset battle

A five-year asset marriage between United States private equity firm Warburg Pincus and fuel supply and logistics group Titan Petrochemicals, founded by Fujian businessman Tsoi Tin-chun, is close to ending in a divorce.

As with so many failed marriages, the squabbling over a division of assets has been going on behind the scenes for months. And, in the meantime, each side has found a new partner who is eager to lay their hands on the spoils.

Back in March 2007, Warburg signed a deal to pay Titan US$175 million for an 18 per cent stake in the group, plus a 49.9 per cent stake in China StorageCo, a fuel storage joint venture set up with Titan which owned the balance of the shares. Titan contributed onshore storage facilities while Warburg injected funds into the venture.

The deal helped debt-laden Titan lower its financing costs, since it borrowed US$400 million in 2005 by selling bonds that carried a hefty interest rate of 8.5 per cent. It also helped fund StorageCo's planned US$1 billion capital outlays on four onshore fuel storage projects.

Warburg chose to put most of its money in StorageCo, in which it bought convertible preference shares and convertible notes totalling US$210 million. It also bought US$40 million of convertible preferred shares in parent firm Titan.

That proved to be a shrewd move. The storage operations turned out to be the only bright spot for Titan Petrochemicals, generating pre-tax profit of HK$50.6 million last year, compared to a profit on the group's fuel supply business of just HK$3.1 million, a loss on offshore fuel storage of HK$133.8 million, a loss on oil transport of HK$191.8 million, and a loss on shipbuilding of HK$213.6 million.