OW Bunker at Risk of Bankruptcy After Uncovering Fraud

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November 6, 2014

Photo credit: OW Bunker

Update: OW Bunker Files for Bankruptcy

ReutersBy Ole Mikkelsen

COPENHAGEN/SINGAPORE, Nov 6 (Reuters) – Danish ship fuel supplier OW Bunker said it may go bankrupt after discovering fraud by unnamed senior employees in its Singapore-based subsidiary and that investors need to assume that the company’s equity has been wiped out.

The news prompted a scramble by shipping companies and bunker oil traders to source fuel and take over supply contracts.

“The company is at risk of going bankrupt. We have decided to file for the commencement of a court restructuring process,” Chairman Niels Henrik Jensen told Reuters on Thursday. The group, whose shares have been suspended, said it had fired its head of risk management.

By revenue, OW Bunker is the third-largest company in Denmark and it owes 13 banks $750 million.

OW Bunker was listed on Nasdaq Copenhagen in March in the second-biggest initial public offering in Denmark since 2010.

Traders said refineries and other shipping fuel suppliers were cutting deliveries and were likely to cancel long-term contracts with the Danish company.

“This is major news and the loss is massive. Even for an oil company the loss is massive, let alone a bunker (fuel) trader,” a Singapore-based oil trader said.

OW Bunker is estimated to have a market share of about 7 percent of the global market for bunker fuel, competing with companies such as World Fuel Services Corp, Chemoil Energy and Aegean Marine Petroleum Network.

“Equity may well be lost. In the best case scenario, shares will be traded as ‘penny shares’ for a while,” brokerage firm Jyske Bank wrote in a note to clients.

The extent of the fraud is not yet clear but preliminary findings suggest a potential loss of about $125 million, the company said, without giving details of the nature of the fraud.

At the same time, a review of the company’s risk management contracts means further losses than previously announced can now be expected. An estimated trading loss of $24.5 million announced on Oct. 23 has been increased to some $150 million, the company said.

Jensen said Danske Bank and Nordea still supported the company but management decided to seek a court restructuring procedure after 11 international banks withdrew their support.

Head of risk management Jane Dahl Christensen has been fired as a consequence of the trading loss.

“We have to get to the bottom of this as soon as possible. The impact to employees, shareholders and customers is terrible,” Soren Johansen, partner at major shareholder Altor Equity Partners, said in a statement.

“It is a scandal. It’s that simple,” said Jesper Langmack, head of asset management in pension fund PFA to daily Borsen.

Last year’s revenue of $17 billion was comprised of both derivative trading and physical delivery of ship fuel. Less than half the revenue was based on physical distribution.

“In the short term we need to find new suppliers to some of the supplies we have commissioned from OW Bunker,” said Niels-Henrik Lindegaard, head of Maersk Oil Trading who is among the world’s biggest buyers of ship fuel on behalf of its parent company A.P. Moller-Maersk.

“We and many others are now chasing new suppliers in an effort to avoid delays for vessels,” Lindegaard said.

European bunker traders told Reuters that unfavourable hedging positions and possibly an aggressive approach linked to their IPO earlier this year had brought them down.

“Almost the whole market has exposure to them — they were so big worldwide,” said one trader, adding there could be some schadenfreude on the part of others as OW Bunker had been so aggressive in taking business in the past few years.

OW Bunker is in discussions with syndicate banks and said it will inform the market further as soon as possible.

The company was listed on Nasdaq Copenhagen in March at 145 Danish crowns per share, giving it a stock market value of about 5.3 billion Danish crowns ($892 million). Morgan Stanley, Carnegie, Nordea and ABG Sundal Collier led the flotation.

Management has since twice downgraded profit guidance for the year.

“We strongly believe that we have conducted a thorough and correct process assisting OW Bunker in the IPO process as book runner,” a Nordea spokesman said.

OW Bunker shares closed at 83.50 crowns on Wednesday. The company has around 20,000 shareholders, with private equity firm Altor Equity Partners the biggest shareholder with 35 percent.

“This case is damaging for investors and the stock market. The stock market is dependent on trust between the companies and its investors. And a case like this does not exactly help new companies in their dialogue with investors,” Carsten Borring, head of listings and capital markets at Nasdaq Copenhagen, said.

OW Bunker signed a $700 million revolving credit facility in January. ING Bank, Nordea and Rabobank were bookrunning mandated lead arrangers on the financing.

ABN AMRO Bank, Danske Bank and Natixis joined as bookrunning mandated lead arrangers, while Commerzbank, Credit Agricole, Deutsche Bank, Fifth Third Bank, Societe Generale, Standard Chartered Bank and UBS AG participated as mandated lead arrangers.

($1 = 5.9409 Danish crown) (Additional reporting by Teis Hald Jensen in Copenhagen, with Jessica Jaganathan and Jane Xie in Singapore; Editing by David Evans and Vincent Baby)

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