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When Will The Dispute Between Henan Billions And German Ti-Cons End

Henan Billions Chemicals Co., Ltd. (Henan Billions) released an announcement stating that there were disputes with Ti-cons Dr. Jendro Und Partner Management Consultants (German Ti-cons) in the project of chloride-grade TiO2 and Henan Billions had already received the notice of arbitration from German Ti-cons. Henan Billions' chloride-grade TiO2 project has always been in the way of bumps and grumps. Such a dispute with its technical guidance, German Ti-cons, would overshadow the quality of chloride-grade TiO2 produced by Henan Billions, according to analysts CCM.

In 21 Jan. 2016, Henan Billions announced that it has received the notice of arbitration from German Ti-cons, which German Ti-cons applied to China International Economic and Trade Arbitration Commission earlier.

In the notice, it stated that German Ti-cons requested Henan Billions to pay its non-paid expanse, RMB31.89 million, according to the contract in the chloride-grade TiO2 cooperation project between Henan Billions and German Ti-cons.

Actually, earlier in Sep. 2015, Henan Billions had already published the Notice of Termination of Contract to German Ti-cons about the cooperation project. However, the notice was not made public at that time, which Henan Billions admitted that it was not appropriate.

As for the device operation, Henan Billions stated that, the qualities of the chloride-grade TiO2 at that time had not reached the standards in the industry. Only parts of the products were on trial for the clients.

The dispute between Henan Billions and German Ti-cons can be dated back to Nov. 2012. At that time, Henan Billions signed a cooperation contract with German Ti-cons that Henan Billions decided to hire German Ti-cons to design, construct and operate its 60,000a/t chloride-grade TiO2 production line.

The contract amount was RMB105 million, which Henan Billions would pay German Ti-cons by installment. Each progress German Ti-cons made, Henan Billions would have to pay for one installment-period, with 7 installment-periods in total.

In May 2015, the project had gone to the sixth period, that is to say, the production line had been constructed and Henan Billions had already paid German Ti-cons 70% of the contract amount.

However, Henan Billions was not satisfied with the result. With the continuing overdue of the production, the final failure of the production line had immediately led to conflicts between Henan Billions and GermanTi-cons.

Both sides disputed the details of the reasons about the failure. German Ti-cons believed that the trial failure was led by 1) the equipment installation by Henan Billions did not meet the requirement; and 2) operation mistakes by Henan Billions' workers. Gernman Ti-cons insisted that Henan Billions still needs to pay German Ti-cons the non-paid expanse RMB31.89 billion according to the contract.

On the other side, Henan Billions pointed out that it purchased and installed all the device components as what German Ti-cons required. The trial failure was led by the technical operation mistakes by German Ti-cons' workers when they were operating the chlorination furnace. It was German Ti-cons that broke the contract first. And due to the overdue of the production, Henan Billions suffered from millions of RMBs of economic losses and the credit damages.

German Ti-cons is an international company to provide technical service and training of producing chloride-grade TiO2. Earlier in 2009, German Ti-cons had made a contract with Yunnan Xinli Nonferrous Metals Co., Ltd. (Yunnan Xinli) to help it to construct a project of 60,000a/t chloride-grade TiO2 production.

In 2012, Yunnan Xinli announced to end its cooperation with German Ti-cons and completed the production line of chloride-grade TiO2 by itself.

At that time, Yunnan Xinli pointed out that the fragmentation technique of German Ti-cons led to the failure of the production.

On the contrary, German Ti-cons stated that Yunnan Xinli itself should be blamed for the failure, because Yunnan Xili didn't operate as the requirement and replaced some device components with some cheap domestic ones, which had affected the operation of the whole device.

After the dispute between Yunnan Xinli and German Ti-cons, Henan Billions actually knew the risks to cooperate with German Ti-cons on the project of chloride-grade TiO2. That is why Henan Billions is paying German Ti-cons by installment to protect itself.

As for the negative effects, in general, it had cost great economic loss for Henan Billions because of the overdue of TiO2 production. Also, it brought a big trust crisis on Henan Billions because of the delay of the project and the non-in-time disclosure of the Notice of Termination of Contract.

Everything is not as simple as what Henan Billions stated in its announcement in 21 Jan. Once we dig deeper into the "trust crisis", we would find out that the series of effects from this dispute will burden a lot on Henan Billions.

Trust crisis from the consumers

Earlier in Nov. and Dec. 2015, Henan Billions had employed to promote its chloride-grade TiO2 by cooperating with PPG, the international coating giant, and also claimed that the qualities of the products could be comparable to the advanced products in the world.

However, the exposure of the dispute this time had placed Henan Billions at the peak of public opinion. Henan Billions reacted very quickly this time and published an official announcement yesterday (Jan. 26) immediately.

It stated that though the chlorination technique provided by German Ti-cons is not perfect, Henan Billions has overcome the difficulties in the technical problems by itself and the production line of chloride-grade TiO2 is operating five times a week. Two kinds of products BLR895 and BLR896 has already got recognition by PPG.

According to some industry insiders, the successful overcome of the technical problems is solved through Henan Billions' discussion with a technical team from a state-owned enterprise in China.

Trust crisis from the investors

Looking back at the history of Henan Billions' announcements, we could find out that Henan Billions implemented the project of chloride-grade TiO2 through the way of raising funds in Nov. 2012. However, with no profits from the delayed project currently and conflicts with German Ti-cons, it is normal to worry that Henan Billions' refinancing plan in 2015 may be held up.

In the refinancing plan from Henan Billions in 2015, Henan Billions planned to raise RMB10.26 billion. RMB9 billion of the total was planned to apply on the 100% acquiring Sichuan Lomon Titanium Co., Ltd. (Sichuan Lomon), the leading enterprise in the industry.

It has been half a year since the acquisition plan announced in May 2015, however, nothing has happened till now.

Trust crisis from CSRC

The Notice of Termination of Contract with German Ti-cons hasn't been disclosed immediately. There is no progress from acquiring Sichuan Lomon since May. However, Henan Billions has gained quite a lot actual income from the stock market during the period of time.

Thus, it is believed that China Securities Regulatory Commission (CSRC) may be stricter on the auditing on Henan Billions in the future after the exposure of the dispute.

Since 2012, Henan Billions has been the top in China's TiO2 market with its amazing developing speed. In Nov. 2012, Henan Billions announced to enter the field of chloride-grade TiO2. In Sep. 2014, it acquired the business of TR52 TiO2 from Huntsman International LLC. (Huntsman). In H2 2015, it expanded the market of titaniferous slag and has become the leading giant in the industry. In Dec. 2015, Henan Billions announced to cooperate with PPG and PPG would serve as a chloride-grade TiO2 provider.

It may be the too fast developing speed, which makes Henan Billions get distracted. It looks like that Henan Billions is derailing the production of TiO2 with high qualities.

However, there is no doubt that Henan Billions is still the leading enterprise in the TiO2 industry though it is sticking in trouble.

Henan Billions still have opportunities to prove itself again through the success in acquiring Sichuan Lomon and the excellent qualities of its chloride-grade TiO2.

However, it is never easy and there is not much time left for Henan Billions to prove itself.

If you have more questions about Henan Billions and China's TiO2 market, get in touch by emailing econtact@cnchemicals.com or calling +86-20-37616606.