SINGAPORE: The Singapore police have begun investigating Hin Leong Trading after the home-grown oil trader filed for bankruptcy protection amid a startling revelation from its billionaire founder that the firm had failed to disclose hundreds of millions in losses over several years.
One of the country’s largest independent oil trader, Hin Leong, which means “prosperity” in Chinese, is now struggling to repay debts of US$3.85 billion (S$5.49 billion).
Hin Leong and its shipping arm Ocean Tankers are seeking a six-month moratorium, according to filings to the Singapore court, which also threw up the admission from founder Lim Oon Kuin that he had directed the firm to hide nearly US$800 million in losses from speculating oil futures over the years.
In the latest development on Tuesday (Apr 21), the police confirmed that “investigations are ongoing” into the debt-laden firm, although it did not elaborate on the nature or scope of its investigations.
ABOUT THE COMPANY
Hin Leong was founded in 1963 by Mr Lim, who came to Singapore from the Chinese province of Fujian.
It started out as a one-man-one-truck supplier of diesel to small fishing vessels before growing into one of the region’s biggest names, with operations across oil trading, terminal and storage, bunker supply, lubricants manufacturing and inland transportation services.
According to its website, Hin Leong’s Ocean Tankers owns and operates more than 130 vessels, while its bunkering arm, Ocean Bunkering Services, is one of Singapore's largest marine fuel suppliers.
It also partly owns Universal Terminal, a commercial storage facility on Singapore's Jurong Island.
As the company grew, so did the fortunes of Mr Lim or better known in the business world as “O K Lim”.
The 76-year-old was ranked 18th on Forbes’ list of Singapore’s richest people in 2019, with an estimated net worth of US$1.65 billion. A Forbes article on Apr 20 said it no longer considered Lim a billionaire following the company’s bankruptcy filing and admission of sustained losses.
Concerns about Hin Leong’s finances emerged early this month with a report that said some lenders had frozen credit lines to the firm.
At least two banks will not issue new letters of credit citing concerns about the firm’s ability to repay debt, said the report by Bloomberg on Apr 9. That week, the company appointed accounting firm PwC and law firm Rajah & Tann as its advisers to help negotiate with banks.
Letters of credit are used to guarantee payment to a supplier for the purchase of goods. These are issued by the banks on behalf of the buyer who repays the banks once the goods have exchanged hands.
Letters of credit are critical trade finance instruments for the likes of Hin Leong as a way of financing short-term trade.
The company held talks with its lenders on Apr 14 but was not able to reach an agreement, according to various media reports. Hin Leong filed for a debt moratorium, which would grant it protection from creditors, on Apr 17.
An affidavit signed by Mr Lim cited the dramatic collapse in global oil prices – brought about by the COVID-19 outbreak and a price war among the oil majors – and a lack of hedging policies among factors behind the company’s financial distress.
A tightening of credit lines and margin calls by banks also caused a “severe depletion” of the company’s cash reserves, Reuters cited Mr Lim as saying in the affidavit.
The affidavit also disclosed how the company “suffered about US$800 million in futures losses over the years but these were not reflected in the financial statements”.
“In this regard, I had given instructions to the finance department to prepare the accounts without showing the losses and told them that I would be responsible if anything went wrong,” Mr Lim had said, adding that the company “has not been making profits in the last few years” despite its financial statements for the 2019 fiscal year reporting a net profit of US$78 million.
The affidavit, which said Mr Lim was resigning immediately as director of the family-held company, did not specify over how many years the losses were incurred.
CIMB economist Song Seng Wun said: “This is a case about checks and balances within the company, as well as the collapse in the energy market brought about COVID-19.
“The very sharp fall in energy prices over a very short period of time compounded the losses and it basically forced the company’s hand.”
An analysis by S&P Global Platts said the woes of Hin Leong confirmed two key concerns - commodity financing curbs and wider industry losses on the back of plunging oil prices.
“Banks were already pulling back from financing oil and gas trades after the oil price crash, with credit shortages due to the coronavirus outbreak percolating into the commodity business more widely than expected,” it said.
“Undisclosed industry losses among commodity traders and oil companies already run into several billions of dollars that could still trigger more defaults and bankruptcies, especially among smaller traders with poor hedging and financing options."
The analysis also described the drop in demand due to the COVID-19 outbreak as the “nail in the coffin”, which left Hin Leong “with unsaleable fuel worth half the original price”.
Mr Lim’s only son Evan Lim Chee Meng, a director at Hin Leong and Ocean Tankers, also submitted a signed affidavit to the courts alongside the moratorium application.
According to Bloomberg, the company had sold some of the million of barrels of refined products it had used as collateral to secure loans from its banks. As a result, the company now faces a “large shortfall of inventory”.
The younger Lim said he was not involved in this decision, which was made by his father. He also said he was unaware of the reason for losses suffered over the years and that it was his father who had instructed Hin Leong’s finance department to omit them from its financial statements.
The company does not have to file financial statements with the Accounting and Corporate Regulatory Authority (ACRA) due to it being “an exempt private company”. This is defined as having less than 20 members and not having any corporations holding beneficial interest in its shares.
In response to queries from CNA, ACRA said it is monitoring the case and “will assess if further action is warranted”.
The troubles at Hin Leong are said to affect 23 banks, with HSBC reportedly having the biggest exposure at about US$600 million and followed by ABN Amro at US$300 million.
Among the three local banks, DBS has the highest exposure at around US$290 million, the Business Times reported last week citing sources. OCBC Bank is owed about US$220 million while UOB had let Hin Leong draw down more than US$100 million as at early April, the report added.
When contacted, UOB said as part of the Banking Act, it cannot confirm or disclose any information on customer relationships that it may or may not have.
French bank Societe Generale confirmed that it is a lender to Hin Leong but said it had no further comment at this stage.
Other banks declined comment or did not respond to queries.
According to a source who spoke to CNA on condition of anonymity, the company’s lenders have appointed law firm Drew and Napier to represent them.
The application for a moratorium automatically gives Hin Leong a 30-day reprieve from creditors.
The court will next decide whether to grant the six-month moratorium extension.