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Fabled Singapore oil trader Hin Leong hid about $800 million in losses racked up in futures trading on the orders of its founder Lim Oon Kuin, suggesting a much bigger hole in the company’s finances than thought, according to affidavits seen by Bloomberg.
The downfall of Hin Leong Trading (Pte) Ltd., one of the biggest and most secretive forces in the world of physical fuel-oil trading, shows the depth of the fallout from the dramatic drop in oil prices so far this year as a consequence of the Saudi-Russia price war and the coronavirus pandemic.
The company also sold some of the million of barrels of refined products it had used as collateral to secure loans from its banks, according to an affidavit by the founder’s son, Lim Chee Meng, attached to an email from the company’s shipping affiliate, Ocean Tankers (Pte.) Ltd., notifying recipient parties of proposed moratorium proceedings.
As a result, the company faces a significant shortfall between the oil stocks it held and the inventories pledged to its banks. That potentially means huge losses for the banks which provided the merchant with billions in loans as the collateral they thought they have as a guarantee isn’t there.
The trouble at Hin Leong is the latest to hit the commodity trading community in Singapore, among the largest hubs alongside Geneva, London and Houston. Over the last three years, the city state has seen the collapse of two other big names in the industry: Noble Group and Agritrade, and a rogue trader raking up millions in losses.
The son, also known as Evan Lim, said he was unaware of the reason for losses suffered over some years and his father had instructed Hin Leong’s finance department to omit them from its financial statements, according to his affidavit.
In his own affidavit seen by Bloomberg, the father also said he ordered that the losses be omitted and that the company hasn’t been making profits in the last few years, contrary to its financial statements.
“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,” he said in the document.
Neither the son nor the father could be reached for comment. Nobody responded to calls or emails to Hin Leong or Ocean Tankers seeking comment. A spokeswoman for Rajah and Tann, one of Hin Leong’s advisers, said the firm is unable to comment because the matter is before the court.
Hin Leong and Ocean Tankers both filed for court protection from creditors on Friday as the former struggles to repay its debts. Both companies are solely owned by the Lim family.
The trader’s financial distress has rocked the tightly-knit trading community in Singapore. It’s raising speculation that the privately-held company could be the latest casualty of the historic collapse in oil prices triggered by the coronavirus.
Hin Leong posted total liabilities and equity of $4.56 billion and net profit of $78 million in the period ended October 31.
But it told its creditors this month that total liabilities were $4.05 billion as of early April, while assets were just $714 million, leaving a hole of at least $3.34 billion, according to screenshots of the presentation to a group of bankers seen by Bloomberg News.
The balance sheet of the company showed no equity at all as of April 9, 2020, and warned that “figures obtained from the company are subject to verification”.
Hin Leong’s latest accounts for the financial year ending October 31, 2019, were audited by Deloitte & Touche LLP. The auditor didn’t flag any problems, according to people familiar with the matter. Press spokespeople from Deloitte’s Singapore office didn’t reply to requests for comment.
Hin Leong told its creditors that it only had $141 million worth of oil products inventory, compared with the $1.28 billion it declared in its audited statement on October 2019. Hin Leong had only $50 million in cash as of April 2020, compared with $461 million in October 2019.
Lim’s son said his father sold a substantial part of the company’s inventories, even when those stocks were used as collateral for banks loans, according to his affidavit. As a result, he said there was a large shortfall of oil inventories compared with the amount that had been pledged to secure the credit lines.
Bloomberg first reported Hin Leong’s financial difficulties April 10 after some lenders had pulled credit lines from Hin Leong amid concerns over its ability to finance its debts. It’s said to owe almost $4 billion to more than 20 banks including HSBC Holdings Plc.
Two banks have filed claims in Singapore over Hin Leong assets in a bid to secure repayment. ABN Amro Bank NV and Societe Generale SA have filed separate applications for charges with the Accounting and Corporate Regulatory Authority related to Hin Leong cargoes and receivables.
Lim Oon Kuin, known to many in the industry as OK Lim, will be resigning from all executive roles in Hin Leong, the Xihe Group and related companies as of April 17, according to the affidavits. He will also step down as director and managing director of Ocean Tankers.
Both Hin Leong and Ocean Tankers have filed for protection from its creditors under Section 211B of Singapore’s Companies Act. Hin Leong was established in 1963 and has grown into one of Asia’s largest suppliers of ship fuel, or bunkers. Ocean Tankers owns a fleet of more than 100 oil tankers of various sizes.
The impact of Hin Leong’s difficulties on the Singapore bunker market is manageable, Transport Minister Khaw Boon Wan said on Monday. “While there is some immediate collateral impact through credit-tightening on other bunkering players, it is manageable,” Khaw wrote in a Facebook post.(Updates with Singapore minister’s comments on local bunker market in last paragraph; an earlier version of the story corrected the size of Hin Leong’s liabilities and equity)
–With assistance from Andrea Tan and Javier Blas.© 2019 Bloomberg L.P
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