Italian chemicals group Mossi Ghisolfi is seeking court approval to work with creditors to allow its operations, including a major petrochemical project in Texas and other plants in the Americas, to regain financial health or possibly be sold to pay off debts, the company said this week.
Privately held Mossi Ghisolfi, or M&G Group, had been showing signs of serious financial difficulties, with sharp cuts in costs and jobs at the construction sites in Corpus Christi, Texas, and the looming shutdown of an existing polyethylene terephthalate plant in West Virginia, which were made public last month through layoff notices to states required by US labor law.
In addition, Mexican petrochemical producer and major M&G feedstock supplier Alpek told investors on Tuesday that M&G also has shut its Mexican PET plant "due to liquidity constraints." Last month, Alpek cut off feedstock supply to M&G's PET plants in Altamira, Mexico, and Suape, Brazil, because of $49 million in unpaid bills, and cited concern for M&G's ability conclude the project in Texas.
M&G posted a statement on its website on Tuesday that said its companies have filed an application of "concordato preventivo" under Italian bankruptcy law -- a form of bankruptcy protection similar to Chapter 11 in the US.
"The companies are studying a proposal for an arrangement that will allow their overall activities to continue as a going concern," Mossi Ghisolfi said in a statement, "although they cannot exclude alternative solutions at the end of the ongoing technical assessments."
M&G spokesman Terry Tyzack on Wednesday declined to elaborate on the announcement, and reiterated M&G's prior statement that the company was working with lenders to address its financial difficulties, which required reductions in operating costs and plant construction activity, and said no decisions had been made to permanently shut down operations or construction.
Alpek CEO Jose Valdez told analysts during the company's third-quarter earnings call on Tuesday that M&G needed a comprehensive restructuring plan that includes restarting the profitable Mexican PET plant.
Alpek took a $394 million loss in third-quarter net income on one-time charges stemming from writedowns of M&G's unpaid feedstock bills as well as Alpek's supply rights to nearly half of PET output from the Texas project and a loan to support its startup.
M&G was Alpek's largest customer of purified terephthalic acid, the primary feedstock for PET, and the distressed company's purchases made up 11% of Alpek's consolidated PTA sales, he said.
"We were surprised by the sudden lack of payments from M&G, and the dialogue with M&G management did not provide any clarity," Valdez said during the earnings call. "Alpek had to act decisively to keep its exposure from growing by holding PTA supply during the third quarter."
Tyzack declined comment on Alpek's disclosure that M&G had shut its 590,000 mt/year Altamira plant, and that the 650,000 mt/year Suape plant was operating with limited liquidity.
Alpek is not alone in claiming millions in unpaid bills. Contractors and employees who performed various jobs on the Texas project have sued M&G in federal court in Corpus Christi or filed mechanics liens in Nueces County District Court seeking tens of millions of dollars they say they never received for overtime pay or services rendered. Those actions are pending.
WORLD'S LARGEST PET PLANT
In 2013, M&G Chemicals, the parent group's Luxembourg, Belgium-based subsidiary, signed a $1 billion contract with Sinopec Engineering Group to build a 1 million mt/year PET plant -- the world's largest -- and a 1.2 million mt/year PTA plant in Corpus Christi.
The US is a net importer of PET, and those imports rose 49% from 660,834 mt/year in 2012 to 982,880 mt/year in 2016, according to US International Trade Commission data. The top five PET importers were Mexico, Taiwan, Brazil, Canada and Pakistan, the data showed.
Initially, M&G said the Texas plants would start up in the second half of 2016. Last year, the company said capacities of both plants would be 100,000 mt/year higher and pushed startup to mid-2017. Tyzack declined comment on whether the company has a new target startup date for the plants.
However, construction jobs at the sites have been cut, with more losses to come, according to the company and state notices of layoffs.
M&G Resins USA LLC, M&G Chemicals' Texas subsidiary, last month gave notice that 100 jobs at the Texas construction sites would be eliminated by November 21. Ten days earlier, Fluor Corp., a global engineering and construction company, laid off 274 workers there at M&G Chemical's request.
In addition, M&G Polymers USA, another subsidiary directly under M&G Chemicals, last month told Mason County, West Virginia, officials that it would shut down production at its 360,000 mt/year Apple Grove PET plant by November 21 "absent obtaining access to additional funding and liquidity," according to a letter to country officials obtained by S&P Global Platts.
M&G's issues have fueled market talk about the future of the Texas projects and ripple effects on prices. Since August 30, prices for bottle-grade PET imported to the US West Coast has risen 7% to $88/mt and domestic contract prices shot up by more than 18% to $241/mt, Platts data showed.
"The market appears to have become very tight at this point," a plastics trader said in an email. "All of the big players are looking for additional volume to cover what they were purchasing from M&G."
Another trader said in an email that the pending West Virginia shutdown generated calls from concerned customers and noted, "with this news, it is unreal to expect customers not to import."
