UPDATE 1-China state oil trader offers to take control of Titan ...

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* Zhenrong on U.S. sanction list for dealing with Iran

* Warburg Pincus seeking to liquidate Titan

By Charlie Zhu and Chen Aizhu

HONG KONG, July 18 (Reuters) - Chinese oil trader Guangdong Zhenrong Energy Co has offered to take control of debt-laden shipping and oil storage firm Titan Petrochemicals Group Ltd , which is facing a liquidation suit from U.S. private equity firm Warburg Pincus.

Zhenrong, hit by U.S. sanctions in January when it was described as the biggest supplier of refined petroleum products to Iran, is controlled by Zhuhai Zhenrong Co, a former affiliate of China's defence industry and now one of the country's five biggest traders of crude oil and oil products.

Titan, which said last week it was in talks to sell a controlling stake, has suffered losses for five consecutive years after its debt-driven growth strategy came undone during a steep downturn in the shipping industry.

Warburg Pincus filed a petition in a Bermuda court earlier this month seeking to wind up Titan, which had assets of HK$6.4 billion ($825 million) at the end of last year while current liabilities reached HK$7.7 billion.

Warburg has invested more than $215 million in Titan since 2007 and holds a stake of around 10 percent.

Under the proposal, Guangdong Zhenrong would pay up to HK$200 million to take a stake in Titan of at least 51 percent, Titan said. Zhenrong would also set aside up to $145 million to buy Warburg Pincus' interest, and provide Titan with interim financing of up to $40 million.

"This proposed investment will create a stable platform from which Titan can ride out the current turbulent market conditions," Titan executive director Patrick Wong said in the statement.

Warburg Pincus declined to comment.

An acquisition would allow Zhenrong to make use of Titan's oil storage facilities in Guangdong, Fujian, Shanghai and Shandong.

"Titan's storage assets, with premium infrastructure and locations, are the biggest attractions to us," a Guangdong Zhenrong official, who declined to be identified as he was not authorised to speak to media, told Reuters.

Chinese businessman Tsoi Tin Chun stepped down this month as Titan's chairman after building the company into a firm with oil storage, shipping and trading businesses spanning China, Singapore and Malaysia. Tsoi controls nearly 48 percent of Titan, which also owns a shipyard in China.

Guangdong Zhenrong's chief executive Xiong Shaohui, formerly a Chinese trade ministry official in charge of petroleum trading, is a university acquaintance of Titan's current chairman Zhao Xuguang, sources told Reuters.

LIQUIDATION PETITION

Zhenrong's investment is subject to an adjournment and eventual withdrawal of Warburg Pincus' winding-up proceedings against Titan, and the receipt of a waiver to exempt it from making a general offer for all of Titan, the statement said.

Tsoi, 49, made a big bet on the highly cyclical oil shipping business in 2005, borrowing heavily to expand its tanker fleet. With the help of Morgan Stanley and Credit Suisse, Titan issued $400 million of seven-year bonds carrying a fixed annual coupon of 8.5 percent.

The shipping market plunged after 2007, and the company's storage business in China ran into stiff competition from Chinese state players such as PetroChina and Sinopec Corp .

Heavy interest expenses ate into Titan's finances, and the company racked up combined net losses of HK$3.5 billion from 2007 to 2011.

Shares in Titan, which has a market value of $248 million, were suspended on June 19 pending an announcement. The stock last traded at HK$0.246, after plunging 50 percent in the last 12 months.

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