Bankruptcy leaves potential of plastics plant unmet
In 2011, an Italian plastics giant surprised the market with plans to build one of the world’s largest PET plastics plants in Corpus Christi, an enormous undertaking that would shift global trade patterns and vastly expand the U.S. capacity to produce the material, used to make many types of bottles and packaging.
Years later, the project is far from complete and its owner, PET plastics conglomerate Mossi & Ghisolfi, is mired in bankruptcy court after construction costs ran well over budget. The proceedings have exposed disputes with suppliers and lenders, including a Mexican bank that has alleged that the company surreptitiously diverted loans to fund the Corpus Christi project. Three foreign PET producers — Thailand’s Indorama Ventures, Mexico’s Alpek and Taiwan’s Far Eastern Investments — have formed a joint venture to buy the plant and resume construction, but experts agree it might be years before operations begin, if ever.
Analysts with research firm Wood Mackenzie on Wednesday said that the plant has the potential to transform the U.S. into a net exporter of PET resins, used in soda bottles and milk jugs. The plant, if completed, could produce 1.1 million tons of PET a year, outpacing North American de-
mand growth and creating export opportunities.
The firm’s analysts estimated that the plant could become partly operational by the third quarter of next year, but the timeline remains highly uncertain. The joint venture purchase is subject to regulatory approval while lender disputes have slowed the bankruptcy process. The plant also faces substantial construction challenges.
“This is not going to be an easy build,” said Phil Marshall, Wood Mackenzie’s head of PET.
Mossi & Ghisolfi, through a web of subsidiaries, began building the plant in April 2013 and planned to finish in late 2015. It was projected to cost $1.1 billion.
Come October, the company had spent nearly $1.9 billion on the project, which remains less than 85 percent complete. Several of its subsidiaries filed for Chapter 11 bankruptcy protection with nearly $1.7 billion in debt owed mainly to foreign banks, as well as $250 million owed to suppliers.
The company estimated the Corpus Christi plant will require another $505 million to complete, but Wood Mackenzie analysts cautioned it could cost more than that. They noted Wednesday that Harvey damaged the structure and may have damaged the existing machinery.
“A two-way joint venture is hard,” said Michael Bermish, a paraxylene and polyester consultant for Wood Mackenzie. “A three-way joint venture is that much more complicated.”
The company, which could not be reached for comment, said in court filings that construction labor cost nearly twice as much as anticipated. On top of that, it said, it faced disputes with its contractor and delays related to Hurricane Harvey, forcing it to take on mounting debt that eventually limited its ability to operate other plants in West Virginia, Mexico and Brazil.
Mossi & Ghisolfi began a restructuring process in Italy around the time of the U.S. bankruptcy filing and soon shut down its global manufacturing operations. Indorama has since purchased its plant in Brazil, and Far Eastern purchased its West Virginia plant.
The bankruptcy proceedings have opened a window into the complex operations of a sprawling multinational that routinely made multimillion-dollar loans between its many subsidiaries. At the time of the Chapter 11 filing, the subsidiaries involved in the Corpus Christi project had shared hundreds of millions of dollars among themselves, at times making it difficult for creditors to discern how their loans had been used.
“When you have these large intercompany claims, that interplay greatly impacts how the company can restructure,” said Josh Friedman, senior legal analyst at Debtwire.
Bancomext, a Mexican stateowned bank, has raised one of the largest disputes in the case, arguing that Mossi & Ghisolfi subsidiaries misused $190 million in loans made exclusively to fund operations at the company’s plant in Altamira, Mexico. The bank alleges that the company invested the loan proceeds not in the plant, but in a pooled account that was ultimately used to cover cost overruns in Corpus Christi.
The company closed its plant in Mexico at the start of September, arguing it didn’t have enough cash to fund operations despite its loans from Bancomext. The bank earlier this year asked Mossi & Ghisolfi to produce internal records and emails to show where the money went, but the company has not yet fully complied with the request.
Mossi & Ghisolfi has filed to dismiss the U.S. bankruptcy proceedings in part because many of its subsidiaries are based in Luxembourg and could be subject to insolvency law there. That motion is pending.