HSBC Seeks To Place Singapore Oil Trader ZenRock Under Judicial

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SINGAPORE (BLOOMBERG, REUTERS) - HSBC Holdings took steps to oust the management at a Singapore oil trader as Europe’s biggest bank seeks to limit potential credit losses from the sector following the collapse of Hin Leong Trading.

The lender filed an application at Singapore’s High Court on May 4 to put ZenRock Commodities Trading Pte Ltd under so-called judicial management, a form of debt restructuring in which a third party runs the company, according to people with knowledge of the situation. A pre-trial conference is scheduled for June 11, said the sources.

The move by HSBC shows that banks are stepping up efforts to avoid further losses after the failure of Hin Leong, the storied Singapore oil trader that owes 23 banks almost US$4 billion (S$5.67 billion). HSBC has the most exposure to Hin Leong, at US$600 million, as part of its global oil-trading portfolio of US$2 billion. Its ZenRock credit is less than US$100 million, according to the people.

HSBC declined to comment. ZenRock didn’t respond to multiple attempts to seek comments via calls and messages.

In response to market speculation over its financial status, ZenRock released a statement last month saying it’s not under statutory restructuring or insolvency protection. The Singapore-based company is operational and is working with other creditor banks to negotiate a consensual restructuring, according to one of the people.

ZenRock has trade financing facilities with about nine lenders aside from HSBC, including Oversea-Chinese Banking Corp (OCBC), Natixis, Credit Suisse Group and Citigroup, the people said. HSBC proposed that KPMG lead the judicial management process, according to the people familiar.

The ZenRock case underscores the mounting tensions between traders and banks, all suffering from a combination of negative oil prices and an historic slump in crude demand due to the pandemic. Banks traditionally offer credit lines in trade finance deals, the lifeblood for the global commodities trading industry that moves millions of cargoes of food, metals and fuel every year.

ZenRock traded more than 15 million tons of oil and petroleum products last year, according to its website. Its business spans from trading to risk management and market research, and the company has offices in Singapore, Shanghai, Zhoushan and Geneva.

TRADING LOSSES

Banks are becoming more cautious on the sector in the wake of the Hin Leong demise. In the biggest scandal to hit the sector in a generation, Hin Leong’s founder Lim Oon Kuin (also known as O.K. Lim) hid about US$800 million in futures trading losses while also selling oil inventories pledged in loans, according to court documents.

A who’s who of trade finance banks are now on the hook for potential credit losses from Hin Leong. HSBC, Standard Chartered, and CIMB Group Holdings Bhd have all taken commodity trading-related loan-loss provisions. France’s Societe Generale and Natixis --as well as Dutch banks, ABN Amro Bank, Rabobank and ING Groep- add to the list of creditors.

Singapore's DBS, OCBC, and UOB collectively have more than US$600 exposure to Hin Leong, according to media reports.

ZenRock was founded in Singapore in 2014 by a group of traders including Xie Chun, its president, formerly from Unipec, and Tony Lin, formerly Vitol’s China head.

The company’s revenues more than doubled to US$6.15 billion in 2018, from US$2.88 billion in the previous year, according to its latest annual financial statement on Singapore’s Accounting and Corporate Regulatory Authority website.

Its earnings before interest and tax (EBIT) also more than doubled to US$11.17 million in 2018, from US$4.62 million in 2017.