HSBC targets Singapore oil trader as credit concerns escalate

SINGAPORE: HSBC Holdings Plc 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 (Pte) Ltd.

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 sources. A pre-trial conference is scheduled for June 11, said the sources.

The move by London-based 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$4bil. HSBC has the most exposure to Hin Leong, at Us$600mil, as part of its global oil-trading portfolio of Us$2bil. Its Zenrock credit is less than Us$100mil, according to the sources.

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 a source

Zenrock has trade financing facilities with nine lenders aside from HSBC, including Natixis SA, Credit Suisse Group AG, Citigroup Inc and Oversea-chinese Banking Corp, the source said. HSBC proposed that KPMG lead the judicial management process, according to sources.

The Zenrock case underscores the mounting tensions between traders and banks, all suffering from a combination of negative oil prices and a 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.

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

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 hid about Us$800mil 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. —