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SINGAPORE: Singapore police began investigating Hin Leong Trading after the local oil trader filed for bankruptcy amid a startling revelation by its billionaire founder that the company had not disclosed hundreds of millions of losses for several years.
One of the country’s largest independent oil traders, Hin Leong, which means “prosperity” in Chinese, is now struggling to pay off debts of $ 3.85 billion (S $ 5.49 billion).
Hin Leong and his shipping arm Ocean Tankers are seeking a six-month moratorium, according to documents filed with the Singapore court, which also rejected founder Lim Oon Kuin’s admission that he had ordered the company to hide losses of nearly US $ 800 million. speculating oil futures over the years.
In the latest development on Tuesday (April 21), police confirmed that “investigations are ongoing” at the debt-laden company, although they did not elaborate on the nature or scope of their investigations.
ABOUT THE COMPANY
Hin Leong was founded in 1963 by Lim, who came to Singapore from the Chinese province of Fujian.
It started as a one-man diesel supplier and small fishing vessel truck before becoming one of the region’s biggest names, with operations in the oil trade, terminals and warehousing, bunker supply, manufacturing of lubricants and ground transportation services.
Hin Leong started as a one-man oil and truck dealer before becoming one of Singapore’s largest independent oil trading companies. (Photo: Hin Leong’s website)
According to its website, Hin Leong’s Ocean Lekers owns and operates more than 130 ships, while its bunkering arm, Ocean Bunkering Services, is one of Singapore’s largest suppliers of marine fuel.
It also partly owns Universal Terminal, a commercial storage facility on Singapore’s Jurong Island.
As the company grew, so did Mr. Lim’s fortune or better known in the business world as “O K Lim”.
The 76-year-old woman ranked 18th on Forbes’ list of the wealthiest people in Singapore in 2019, with an estimated net worth of $ 1.65 billion. A Forbes article on April 20 said it no longer viewed Lim as a billionaire after the company’s bankruptcy filing and admission of sustained losses.
Hin Leong was founded in 1963 by Lim Oon Kuin. (Photo: Hin Leong’s website)
WHAT HAPPENED
Hin Leong’s financial concerns were raised earlier this month with a report saying some lenders had frozen the company’s lines of credit.
At least two banks will not issue new letters of credit citing concerns about the company’s ability to repay the debt, the Bloomberg report said on April 9. That week, the company named 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 banks on behalf of the buyer who pays the banks once the goods have changed hands.
Letters of credit are critical trade finance instruments for people like Hin Leong as a way to finance trade in the short term.
The company held talks with its lenders on April 14, but was unable to reach an agreement, according to various media reports. Hin Leong requested a moratorium on the debt, which would grant him protection against creditors, on April 17.
An affidavit signed by Lim cited the dramatic collapse in world oil prices, sparked by the COVID-19 outbreak and a price war between the big oil companies, and the lack of hedging policies among the factors behind the financial problems. of the company.
A tightening of credit lines and margin calls by banks also caused a “severe depletion” of the company’s cash reserves, Reuters quoted Lim in the affidavit.
READ: Oil prices plummet below $ 0 for the first time amid devastating excess
The affidavit also revealed how the company “suffered futures losses of approximately $ 800 million over the years, but this was not reflected in the financial statements.”
“In this regard, I had instructed the finance department to prepare the accounts without showing the losses and I told them that I would be responsible if something went wrong,” Lim said, adding that the company “has not been making a profit.” in recent years ”despite the fact that its financial statements for fiscal year 2019 report a net profit of US $ 78 million.
The affidavit, which said Lim immediately resigned as director of the family business, did not specify how many years the losses were incurred.
CIMB economist Song Seng Wun said: “This is a case of checks and balances within the company, just as the collapse in the energy market caused COVID-19.
“The sharp drop in energy prices in a very short period of time compounded the losses and basically forced the company’s hand.”
An analysis by S&P Global Platts said Hin Leong’s problems confirmed two key concerns: commodity financing brakes and broader industry losses from falling oil prices.
“Banks were already pulling out of financing for oil and gas exchanges after the drop in oil prices, with credit shortages due to the coronavirus outbreak that infiltrated the commodity business more than expected.” , said.
“The undisclosed industry losses between commodity traders and oil companies already total several billion dollars, which could still lead to further defaults and bankruptcies, especially among smaller traders with poor coverage 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.”
READ: What is a negative crude future and does it mean something to consumers?
Lim’s only son, Evan Lim Chee Meng, director of Hin Leong and Ocean Tankers, also filed a signed affidavit in court along with the moratorium request.
According to Bloomberg, the company had sold some of the millions of barrels of refined products that it had used as collateral to obtain loans from its banks. As a result, the company now faces a “large inventory deficit”.
Young Lim said he was not involved in this decision, which was made by his father. He also said that he did not know the reason for the losses suffered over the years and that it was his father who had instructed Hin Leong’s finance department to omit them from his financial statements.
The company does not have to file financial statements with the Accounting and Corporate Regulatory Authority (ACRA) because it is “an exempt private company.” This is defined as having less than 20 members and not having corporations with beneficial interests in their shares.
In response to CNA inquiries, ACRA said it is monitoring the case and “will assess whether further action is warranted.”
WHO IS HIT?
The Hin Leong troubles are said to affect 23 banks, HSBC reportedly has the highest exposure at about $ 600 million and followed by ABN Amro at $ 300 million.
Among the three local banks, DBS has the highest exposure at about $ 290 million, Business Times reported last week, citing sources. OCBC Bank is owed about $ 220 million, while UOB had let Hin Leong withdraw more than $ 100 million in early April, the report added.
When contacted, UOB said that, as part of the Banking Law, it cannot confirm or disclose any information about customer relationships that it may or may not have.
French bank Societe Generale confirmed it is a Hin Leong lender, but said it had no further comment at this stage.
Other banks declined to comment or did not respond to inquiries.
According to a source who spoke to CNA on condition of anonymity, the company’s lenders have appointed the law firm Drew and Napier to represent them.
WHATS NEXT
Requesting a moratorium automatically gives Hin Leong a 30-day suspension from creditors.
The court will then decide whether to grant the six-month moratorium extension.
