UAE-Based Trader with Questionable History Forced to Sell Ship to Repay $58 Million Loan

FAL Oil Co., a United Arab Emirates-based energy trader that’s under U.S. financial restrictions for links to Iran, faces the forced sale of a fuel tanker held in Singapore to repay $57.6 million to DVB Bank SE.

U.A.E.-based Horizon Energy LLC intends to buy the vessel for $34.5 million, Gina Tan, the attorney representing FAL, said today at a hearing of the Singapore Supreme Court. A judge in the city state, where authorities have detained the ship since July, gave lawyers one week to arrange the sale.

Frankfurt-based DVB, which loaned $62.4 million to FAL Oil in July 2010 to refinance the construction of two tankers, sued the trader and sought the seizure of one of the tankers after telling FAL it had defaulted. The allowance financed the Khorfakkan, currently held in Singapore, and the Al Buhaira, according to publicly available documents at the Court. Both are Aframax tankers capable of transporting about 80,000 to 100,000 metric tons of oil.

Energy-trading companies that rely on cash flows and credit to buy fuel and operate ships have faced difficulties amid the global financial crisis, with banks restricting lending at the same time that rising commodity prices have made fuel more expensive.

Selling the Khorfakkan won’t raise enough to pay off FAL’s loan from DVB, the bank said in an Aug. 13 filing to the court. The vessel was appraised at between $30 million and $36 million, DVB said in the filing, citing two valuations it commissioned for the court case. That compares with a fair market value for the vessel of $56 million to $58 million in 2010, DVB said.

Motion Filed

DVB’s lawyers filed a motion yesterday, asking the court to allow the bank to sell FAL’s ship itself, rather than putting the vessel up for public auction, as the court had suggested. Mark Tan, representing the bank, told Justice Andrew Ang today that Liberia-registered Loyalty Trading bid $32.7 million for the tanker.

FAL, once one of the largest ship-fuel suppliers in the U.A.E., is in talks with lenders to restructure debt and get new cash for operations, a FAL official said last month. FAL is trying to extend the maturity of about $700 million in debt, said the official, who asked not to be identified because talks are in progress. The trader is seeking about $600 million in working capital from lenders, the official said on Aug. 30.