- Hin Leong Trading and Ocean Tankers filed for bankruptcy protection.
- Singapore hosts the largest number of oil tankers at anchor in the world.
- Hin Leong owns and operates Universal Terminal, one of the largest crude oil terminal and storage facilities in the world.
- Huge number of tankers are anchored in Singapore and many are waiting to offload at Universal Terminal.
Hin Leong Trading, one of Singapore’s largest independent oil traders, said that it failed to declare about $800 million in futures losses over the years, reports Seeking Alpha and hints on who is at risk, and who may benefit.
Here’s an excerpt from that.
Connection between the three
The discussion here is about the connection between Hin Leong Ltd., Ocean Tankers Ltd., and Universal Terminal, (the commodities trader, the tanker owner/operator, and the crude oil terminal).
Hin Leong Group also includes other entities such as lubricants, marine bunkering, and trucking.
Hin Leong Group
- Hin Leong Group was founded in 1963 and has grown to one of the largest companies in Singapore.
- Wholly-owned subsidiary Ocean Tankers operates more than 130 vessels ranging from small barges to very large crude carriers.
- This makes them one of the largest owner operators in the world. Finally, Universal Terminal is a joint venture crude oil terminal with PetroChina (PTR) capable of servicing 2 VLCCs at a time.
- It consists of 15 berths and has a capacity of 2.33MM cubic meters.
Last Friday, the chairman and founder O.K. Lim disclosed that the company had hidden $800M in trading losses.
The founder claimed, “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.”
Why did banks freeze the company’s credit?
A $800M loss in a company worth $4.5 billion, while significant, should not be a death knell.
Evan Lim, director and son of the founder, said that his father had sold oil inventories that had been used as collateral to secure bank lines. As a result, banks froze the company’s credit.
Positive equity declared last October
At the time of the court filing, Hin Leong disclosed that total liabilities were $4.05 billion as of April. That compares to just $714 million in assets, resulting in a $3.34 billion deficit.
This raises the question of how Hin Leong could report positive equity of $4.56 billion and net profit of $78 million in the period ended last October 31?
Explanation from Deloitte & Touche LLP, the company auditor regarding the same is awaited.
Who is at risk?
There are players at risk, though some are not so obvious.
- HSBC (HSBC) has the largest credit line, at more than $600M.
- Others includes ABN Amro (OTCPK:AAVMY) at $300M,
- ICICI Bank (IBN) at $100M, and
- OCBC Bank (OTCPK:OVCHF) and United Overseas Bank (OTCPK:UOVEF) with $60M each.
Secondary players at risk
Those that have fixed and contracted through Ocean Tankers for delivery.
Hin Leong stated that the company will not be able to meet deliveries, hence the concurrent bankruptcy filing of Ocean Tankers. Exactly who these entities are, we will have to wait and see.
Another secondary player would be PTR, the second party of Universal Terminal. Operations have continued at the terminal and are expected to continue.
This means, operators like Frontline (FRO), DHT Holdings (DHT), and Euronav (EURN) with ships in the area probably need not worry.
Tertiary players at risk
- There are multiple crude oil terminals in Singapore.
- If Universal Terminal slows, the other terminals will benefit.
- Ship owners/operators anchored in Singapore may have to move to find a terminal where they can offload.
- In the long run, tankers may seek alternative routes.
- Considering the route to Singapore is one of the least expensive routes, it would be both a positive (owner/operator) and a negative (producers/traders).
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Source: Seeking Alpha