Titan Reveals Improved GDZR Deal

New agreement could see GDZR invest up to HK928.2 million.

Titan Petrochemicals Group Ltd. (Titan) [HKG:1192] has revealed that last month it entered into a supplemental agreement with Guangdong Zhenrong Energy Co. Ltd (GDZR) that it says represents a "significant improvement" over the previously announced terms for the Chinese oil trader's purchase of almost 90% of Titan.

The new September 10, 2012 agreement could see GDZR invest up to HK$928.2 million (USD $119.7 million), instead of the previously agreed HK$175 million (USD $22.6 million), with the firm saying it was a "more compelling long term solution for all Titan shareholders and creditors."

Rather than the subscription of 7 billion newly issued shares, the press release said GDZR would subscribe to 3,461,093,248 Preferred A Shares for a total consideration of HK$538.2 million (USD $69.4 million), plus provide an equity line of up to HK$390 million ($50.3 million) by the subscription of a maximum of 780 million Preferred B Shares.

The debt restructuring proposal is also improved to a five-year scheme bearing 2% interest, instead if the previous seven to ten year scheme.

Most Compelling Option

"[Titan's board] received Guangdong Zhenrong's intention to restructure Titan's debt and take over the Company in July and concluded the Subscription Agreement with Guangdong Zhenrong in August. Subsequently, it gained approval from Guangdong Zhenrong's shareholders for its plans for Titan. In addition, Guangdong Zhenrong made a further move by acquiring Mr. Tsoi Tin Chun's remaining 45.47% stake in Titan to become the single largest shareholder in Titan," commented Patrick Wong Siu Hung, Executive Director of Titan.

"We believe the supplemental agreement is by far and away the most compelling option, of all those that have been disclosed, for Titan creditors and shareholders. By working with a strong partner in Guangdong Zhenrong, Titan's recently strengthened senior management team is confident that today's news is a defining moment as Titan seeks to establish a solid foundation for its long term development," he added.

Titan is currently facing a winding up petition in Bermuda, where Titan is incorporated, brought against it by U.S. private equity firm Warburg Pincus, LLC (Warburg Pincus) entity Saturn Petrochemical Holdings Ltd (SPHL), who says the firm is "insolvent and should be liquidated."

It called Titan's proposed restructuring deal with GDZR "unrealistic" and "lacking in several critical details," as well saying that extending the firm's debt obligations by 7 to 10 years would not resolve Titan's "manifest insolvency, but simply defers the problem yet again."

Warburg Pincus subsequently said SPHL and SouthernPec Corporation (SouthernPec) had formed a joint venture company to put forward an alternative deal worth HK$208 million (USD $26.84 million) in cash and up to HK$382 million (USD $49.28 million) in monies owned to SPHL by Titan for 88% of the firm's new equity.

The liquidation hearing, which has already been adjourned three times, is scheduled for November 16, 2012.