Petroplus Prepares to File for Insolvency After Talks Fail: Zurich Mover

Petroplus Holdings AG (PPHN), the largest independent European refiner, said it plans to file for insolvency. The stock plunged 84 percent.

The Zug, Switzerland-based company said in a statement today that it will seek to ensure that operations are “safely shut down and to preserve value for all stakeholders.”

The announcement marks a further decline in Europe’s refining industry after BP Plc and Royal Dutch Shell Plc cut capacity as margins thinned and fuel demand stopped growing. Petroplus had about $1 billion in credit lines frozen last month, preventing it from supplying plants with crude. It said last week it may sell three of its five European plants.

“With the bankruptcy, the worst scenario for the company came true,” Martin Schreiber, an analyst at Zuercher Kantonalbank, wrote in a note to investors. “How much shareholders will be entitled to from the bankruptcy can barely be estimated due to the opaque situation of Petroplus.”

BP and Shell, Europe’s biggest oil companies, said the supply of fuels to their services stations hasn’t been disrupted. BP sold the Coryton refinery in the U.K. to Petroplus in 2007, and Shell sold Petroplus the Petit Couronne plant in France a year later. Essar Energy Plc said its Stanlow refinery in the U.K. would look to “fill gaps in the market” caused by Coryton’s closure.

Sell Refineries

Petroplus said last week that it might sell refineries in France, Belgium and Switzerland, while continuing to operate the plants in the U.K. and Germany. As well as trying to renegotiate financing with its banks, Petroplus had also been seeking a crude supply deal on terms that would reduce the cash needed to keep refineries going.

“We have worked hard to avoid this outcome, but were ultimately not able to come to an agreement with our lenders to resolve these issues given the very tight and difficult European credit and refining markets,” Chief Executive Officer Jean-Paul Vettier said in the statement.

Petroplus slid 1.23 francs to 24 centimes at the close in Zurich. The company’s shares were suspended from trading in Switzerland yesterday. The stock has lost 98 percent of its value in the past year. Petroplus’s market value is now 23 million francs ($25 million).

Default Event

Petroplus’s lenders yesterday sent a notice of acceleration to the company, demanding immediate repayment of its $1.1 billion revolving credit facility. The acceleration also “constitutes an event of default” on $1.75 billion of outstanding senior and convertible bonds, the company said in today’s statement.

The credit line was frozen Dec. 27 after Petroplus breached covenants in September when earnings before interest, tax, depreciation and amortization fell below the required 2.5 times net interest expense. Banks had earlier waived some loan terms until the end of the first quarter of 2012 to give the company time to renegotiate the loan and secure crude supply.

BNP Paribas

BNP Paribas SA, Commerzbank AG, Credit Suisse Group AG, ING Groep NV, Fortis Bank Nederland and Natixis SA arranged the credit line in 2009, which paid interest of 300 basis points more than the London interbank offered rate, or Libor, according to data compiled by Bloomberg.

The refiner had halted deliveries from its U.K. plant after lenders forced it to stop selling fuel, Richard Howitt, a European Parliament member for the east of England, said in a statement yesterday.

Earlier this month, the company reached a temporary agreement with creditors to keep plants in Coryton, and Ingolstadt, Germany, in operation. Petroplus’s credit rating was cut by Standard & Poor’s for a second time on Jan. 17.

The outlook for oil refining in the next two decades is “dire” given excess capacity in the industry, BP’s Chief Economist Christof Ruehl said on Jan. 18. Other refineries in Europe have been forced to close because overcapacity is making it unprofitable to turn crude oil into gasoline and other fuels.

LyondellBasell Industries NV decided to close its 105,000 barrel-a-day Berre refinery in France after failing to find a buyer.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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