M&G Chemicals S.A. (M&G; Luxembourg) has petitioned for Chapter 11 bankruptcy protection with the Delaware Bankruptcy Court.
Documents submitted to the court on 31 October state that delays and cost overruns associated with M&G’s massive polyethylene terephthalate/purified terephthalic acid (PET/PTA) project at Corpus Christi, Texas, have left the company insolvent. The company has asked the court to permit a $100-million debtor-in-possession (DIP) loan that would allow M&G to continue operating until it can liquidate its assets to pay creditors, a process that would be completed by the end of February 2018.
The Corpus Christi project, which consists of a 1.1 million metric ton (MMt) per year PET line and an integrated 1.3 MMt/year PTA line, was originally due to be completed in December 2015, at a cost of $1.1 billion. However, M&G has already spent $1.86 billion, and the project is only 85% complete, according to a statement submitted by Dennis Stogsdill, the company’s new chief restructuring officer. Finishing the project would take another $505 million, he says, but the company has exhausted its credit.
M&G already has $1.7 billion in financial debt. Of the 11 creditors, the largest are Banco Inbursa ($436 million); Alpek’s US subsidiary, DAK Americas ($435 million of purchased future production capacity); and the Industrial and Commercial Bank of China ($350 million).
Unable to purchase raw materials, M&G shut down its Altamira, Mexico, PET facility on 5 September. The Apple Grove, Virginia, plant was shut down on 22 October. M&G Polymers USA, an M&G subsidiary that operates the Apple Grove plant, declared bankruptcy on 24 October.
Alpek has written off the $435-million production deal as an intangible asset impairment in its third-quarter 2017 results. The company also recognized a $113 million accounts receivable impairment tied for raw materials supplied to M&G’s Altamira, Mexico, PET plant, which is supplied by Alpek’s largest PTA plant. However, Alpek is optimistic that it will be able to recover some or all of the loss by leveraging its position as a PTA supplier in Mexico and Brazil and a secured claim against the Corpus Christi assets.
One step in this direction has been the purchase from Inbursa of credit rights to a $100-million loan secured by a first lien on the PET plant. “For us, one of the key issues is to restart Altamira as soon as possible,” Alpek CEO Josede Jesus Valdez Simancas said during the company’s third-quarter earnings call. “This is very important …. It’s a profitable plant, generates positive cash flow, and we believe it’s for the good of all the creditors of that plant to have this plant back on stream …. For us to have a voice and to be able to influence this program, it was very important for us to have the first lien.”
“The $435 million are guaranteed by a second lien in Corpus,” added Alpek CFO Eduardo Escalante Castillo, “and we estimate … the current value of the investment is significantly higher than the value of the first lien and second lien. So we feel confident that we’ll be able to get restitution on some of these writedowns.”
M&G’s account provides food for thought to other chemical producers with US Gulf Coast projects under way or in development. In his statement to the bankruptcy court, Stogsdill says design and technical issues, weather, disputes with subcontractors, engineering audits, and delays in equipment delivery have all helped push the project over budget and behind schedule, but the greatest problem has been soaring labor costs. “Although equipment costs remained within budget for the project, labor costs far exceeded expectations,” he notes. “Specifically, labor costs for construction of the Corpus Christi plant have averaged about $104 per hour, compared with the $55–60 per hour that was budgeted, due to market forces and low productivity.”
M&G has also been hobbled by difficult conditions in the US PET market. Stogsdill cites high raw material costs, underpriced imports, and discounts M&G was forced to offer when a competitor slashed prices as it exited the marketplace.
By Clay Boswell
Source: Chemical Week
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