Independent liquidators best placed to effect restructuring of manifestly insolvent Titan Petrochemicals
HONG KONG, Aug. 17, 2012 /PRNewswire-Asia/ -- Saturn Petrochemical Holdings Limited ("SPHL"), an affiliate of Warburg Pincus LLC ("Warburg Pincus"), filed a petition on July 5, 2012 against Titan Petrochemicals Group Limited ("Listco" or "Company") in Bermuda for a winding-up order and the appointment of liquidators, on the basis of Listco's inability to pay its debts. The initial court hearing in Bermuda took place on August 16, 2012, and has been adjourned to September 5, 2012 to allow, amongst other things, the proper consideration of an affidavit which was filed by Listco on August 15, 2012.
Listco's insolvency is undisputed, and indeed has been publicly acknowledged by Listco in an announcement dated March 18, 2012 in anticipation of its default on the USD400 million 8.5% Guaranteed Senior Notes Due 2012. Since this date, and despite substantial encouragement from key creditors, the Listco management has failed to present a viable restructuring proposal to its creditors.
The proposal that Listco has presented to date has significant flaws, appears unrealistic, is still very preliminary, highly conditional and lacking in several critical details;
- the extent of the return for creditors is entirely dependent on whether Listco is able to retain its interests in Titan Group Investment Limited (In Liquidation) ("StorageCo"). This is highly uncertain, not least because SouthernPec Corporation ("SP") and Saturn Storage Limited ("SSL"), an affiliate of Warburg Pincus and the biggest creditor of StorageCo, have formed a joint venture entity to submit a joint restructuring proposal to the liquidators of TGIL which they believe will deliver a superior return to stakeholders of StorageCo compared to the proposal supported by Listco;
- Listco's proposal to extend its debt obligations by 7 to 10 years will not resolve Listco's manifest insolvency, but simply defers the problem yet again. The inability of Listco's management team to address the fundamental problems facing its business have been clearly demonstrated by the fact that, despite a number of previous debt restructurings, Listco was not able to prevent a default under its restructured bonds in March;
- Listco has not articulated any clear plan as to how the business is going to be turned around after 5 years of accumulated losses amounting to HKD3.53 billion (USD452.6 million) under its current management team.
SPHL's petition to the Bermudian court to have an independent insolvency practitioner appointed over Listco is predicated on Listco's dire financial position which shows no realistic sign of improving, and the urgent need to have independent third parties with specialist restructuring expertise in control of Listco in order to safeguard the interests of the creditors as a whole, consider all restructuring options available to Listco and its subsidiaries, and (as appropriate) investigate the prior conduct and activities of the Listco management.
The approach taken by SPHL in relation to Listco is consistent with that taken by SSL in respect of StorageCo, which was previously under the control of Listco management. Following an application made by SSL, the Eastern Caribbean Supreme Court in the High Court of Justice, BVI, appointed Russell Crumpler, Patrick Cowley and Edward Middleton as liquidators ("Liquidators") of StorageCo on July 16, 2012. The Liquidators are now actively pursuing a restructuring of StorageCo and its subsidiaries ("StorageCo Group") in an expeditious manner, which will necessarily include as assessment of all of the options available to the StorageCo Group having regard to the creditors as a whole, including the proposal from the joint venture entity formed by SSL and SP, as referred to above.
The independence of the Liquidators, and the transparent nature of the restructuring process being effected in respect of the StorageCo Group, is critical in order to provide creditors with the assurances and certainty necessary to effect a successful restructuring. It is envisaged that the Liquidators would work closely with their counterparts appointed by the Bermudian court over Listco in due course to ensure the continued operation of the wider group as a viable going concern.
On July 19, 2012, SSL filed a lawsuit in Hong Kong against Listco, one of its subsidiaries and a number of Listco's executives. The lawsuit relates to various alleged breaches of contract and misrepresentations, including in connection with the unauthorized execution and concealment by the defendants to the lawsuit of certain guarantees totaling approximately RMB1.48 billion. The guarantees were given by three subsidiaries of StorageCo in favour of lenders to subsidiaries of ListCo which are outside of the StorageCo group. The guarantees provided no material benefit to the StorageCo group and have caused significant financial damage and additional potential liabilities.
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Pui Shan Lee
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