New oil-trading scandal rocks Singapore
Police raid firm accused of 'dishonest' transactions by HSBC
published : 8 May 2020 at 21:12
writer: Bloomberg News
SINGAPORE: The turmoil engulfing Singapore’s oil trading community deepened on Friday as police raided the office of ZenRock Commodities Trading Pte Ltd following allegations made by HSBC that the company was involved with a number of “dishonest” transactions.
The raid comes just weeks after the implosion of the legendary fuel trader Hin Leong after its founder said that the company hid millions of dollars in losses and secretly sold some of the millions of barrels of oil inventories pledged as collateral for its loans.
The revelations have rocked the close-knit oil trading community in Singapore, one of the world’s most important commodity hubs, and exposed the risks to banks that finance the opaque business of moving raw materials around the planet.
They also point to a widening fallout from the crash in oil prices triggered by the coronavirus, as a collapse in demand shakes the energy industry to its core.
Singapore police raided the ZenRock offices following a hearing in the High Court on Friday concerning HSBC’s application that the trader be placed under judicial management, a form of debt restructuring in which it is run by a third party, according to people familiar with matter.
Executives from KPMG were appointed to lead the process to oversee ZenRock, said the sources, who asked not to be identified because they’re not authorised to speak publicly.
Police spokesmen said it was “inappropriate to comment” on the matter while nobody answered calls or messages to ZenRock’s management. HSBC confirmed that the High Court had granted its application for the appointment of interim judicial managers in relation to ZenRock.
HSBC has alleged that the trader was involved in a series of “highly dishonest transactions” that included the company using the same cargo of oil to obtain more than one loan from banks, according to court documents seen by Bloomberg. The bank reported ZenRock to Singapore’s Commercial Affairs Department on April 28, according to the documents.
The bank said it has lost confidence in the management of the company and its ability to pay its debts to the bank, which amount to almost $49 million, according to the documents filed in the High Court on May 4.
HSBC said it has reason to believe ZenRock provided false and/or fraudulent transaction documents in its loan applications to the bank. It also said it believes the trader may have wrongfully diverted payment of funds that should have been paid directly to the lender “and/or dissipated these funds beyond the reach of the bank”.
HSBC said it understands that the company’s total debt to institutional lenders stands at about $165 million, according to the documents.
HSBC’s claim against ZenRock comes as Europe’s biggest lender faces even bigger losses from the implosion of Hin Leong Trading (Pte) Ltd. Of the more than 20 banks owed almost $4 billion by the fabled trader, HSBC was said to have the biggest exposure at about $600 million.
Just a few weeks ago, ZenRock released a statement in response to speculation over its financial status, saying it was 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, a person said on Wednesday.
The allegations come in the wake of some high-profile cases in recent years of banks being hit by traders using the same commodities as collateral for several loans. In one of the industry’s most notable cases, Standard Chartered and Citigroup in 2014 lost millions after a Chinese metals trader pledged the same stockpile three times.
ZenRock was established in 2014 in Singapore by a group of veteran oil traders including Xie Chun and Tony Lin. Xie used to work for Unipec, the trading arm of the Chinese state-owned oil company Sinopec, and Lin was previously at Vitol, the world’s biggest independent oil trader.
The company 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 it has offices in Singapore, Shanghai, Zhoushan and Geneva.
The firm posted revenue of $6.15 billion in 2018, compared with $1.24 billion in 2016, according to its most recently available annual financial statement.