Singapore oil traders rush to reassure clients

Oil traders in Singapore are scrambling to reassure nervous clients they have no exposure to crisis-hit rival Hin Leong and can survive the steep drop in demand caused by coronavirus.

The collapse of Hin Leong, which last week revealed $800m of undisclosed losses and is seeking substantial debt restructuring, has sent shockwaves through Singapore’s tight-knit trading community, which is also grappling with a crash in oil prices.

Demand for ship fuel, gasoline, diesel and other oil products has plunged because of government lockdowns to contain the spread of the virus.

The twin shocks have reverberated through the banking industry in the city-state, where billions of dollars of physical commodities and related financial derivatives change hands every year. 

In response, leading trade finance banks have started to tighten credit lines to traders and stepped up their scrutiny of existing loans, raising the prospect of a severe liquidity crunch for all but the biggest players. 

On Tuesday, Singapore’s de facto central bank urged lenders not to “indiscriminately” exit its oil industry. Singapore is the world’s biggest bunkering port.

Winson Group, which trades petroleum fuel and operates a fleet of tankers, has urged clients to ignore rumours that it has “run into financial difficulties, declaring its financial position “remains healthy and liquid”. 

“We have been able to meet all our obligations with both our banks and suppliers,” it wrote in a letter seen by the Financial Times, adding that it did not have “open account receivables” with Hin Leong or related companies. 

ZenRock Commodities Trading said it had “ability and experience” to navigate “profitably” the unprecedented challenges facing the industry — including negative oil prices. 

“We assure you that we do not have any open account sale to Hin Leong and/or any of its associated or related entities,” it added in a letter to clients, also seen by the Financial Times. “We also assure you that we are not under statutory restructuring/insolvency protection,” it said.

Winson and ZenRock did not immediately respond to requests for comment. 

Following the collapse of Hin Leong, banks have become more nervous about lending to the industry. Deals to finance oil inventories and unsold oil cargoes have come under particular scrutiny.

“This is confined to Asia-Pacific at the moment, but it could go global,” said one senior banker. 

Hin Leong’s founder Lim Oon Kuin admitted last week he had sold inventories pledged as collateral for loans after the company was hit by a cash crunch.

“Banks will be looking very closely at their exposure to commodity traders,” said Baldev Bhinder, managing director of Singapore-based law firm Blackstone & Gold. “Inventory financing will also be affected when collateral held has reduced in value, leading to margin calls.”

It also emerged on Thursday that April 30 has been set as the date for a High Court hearing where Hin Leong will seek to appoint PwC as an interim manager to run the business as it pursues a debt restructuring of almost $4bn.

The scandal comes as Singapore — which this year had seemed to contain the spread of coronavirus — struggles to stem a new wave of infections among foreign workers living in crowded dormitories. The number of overall cases has jumped 150 per cent to 11,178 in the past week. 

In light of the extended lockdown, Singapore’s deputy prime minister and finance minister added S$3.8bn to the country's relief package aimed at countering the outbreak’s impact on an economy that analysts say will dip into recession this year. The unprecedented support scheme now totals S$63.7bn.