Debt-hit Hin Leong's financials under spotlight as founder steps down from top posts

Singapore

SINGAPORE's icon in the oil trading arena Lim Oon Kuin has given up his board and management posts at Hin Leong Trading (HLT) as a US$4 billion debt pile and potential scrutiny of the company's books threaten to bring it down, said sources close to the company.

The Business Times understands that the low-key billionaire known as Mr OK Lim - a legend in the city state's oil and marine sector - has decided to step aside to facilitate the troubled firm's debt restructuring efforts.

It has also emerged that HLT suffered around US$800 million of losses from futures trading that were not reflected in its financial statements, according to sources. For the year ended October 2019, HLT reported positive equity of nearly US$510 million and net profit of US$78 million. (see amendment note)

PwC - HLT's financial adviser for the debt revamp - is undertaking a review of HLT's financial position including certain "unusual significant payments and trades", according to a source, citing a slide that was presented to the trader's lenders as it sought their indulgence to restructure its debts.

"He (OK Lim) has a plan. It may not be bulletproof but it could play out very well. He just needs to prove his sincerity...." said a source close to the firm.

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HLT, it is understood, has also been holding talks with potential strategic investors over the weekend to raise funds through the sale of certain assets, chiefly its prized asset Universal Terminal (UT).

Hin Leong Group owns some 40 per cent in UT - a commercial storage facility on Singapore's Jurong Island - while China oil giant PetroChina owns 25 per cent and Macquarie Asia Infrastructure Fund (MAIF) holds the rest.

BT reported over the weekend that HLT filed an application last week in Singapore's High Court for a six-month debt moratorium after creditors came knocking. There are 23 banks exposed to HLT, including Singapore's big three with a combined exposure of some US$650 million.

In a letter to lenders dated April 17 that was obtained by BT, HLT director Evan Lim Chee Meng - son of the group's founder - said the firm was facing "real threat" of legal or insolvency proceedings or "enforcement steps" which will undermine its debt restructuring efforts and jeopardise HLT as a going concern.

Mr Evan Lim further said HLT was "constrained" to seek a debt moratorium following "numerous demands" for payment" by banks and "numerous accompanying calls and email correspondence". Rajah & Tann is HLT's legal adviser.

Mr OK Lim built the Hin Leong Group from a one-man-one-truck oil dealer in the 1960s into the city state's largest oil trader and one of the region's largest tanker owners and bunkering firms. Many who have worked with him and move in his circle describe him as a "workaholic" and philanthropist.

"At one point, everyone (oil traders) would wait to see what trading positions he was taking on the trading platform to figure out their own bets. Ask any trader in Singapore. That's how big he is," said an industry player.

Now, the group is fighting for survival after being shaken to the core by the collapse in oil prices, ravaged by the Covid-19 outbreak that has hit oil demand. The all-out price war between oil majors Saudi Arabia and Russia worsened the rout.

The fallout has spilled over to the group's other businesses, with the most seriously hit being Ocean Tankers. With a fleet of 130 vessels including 14 very large crude carriers (VLCCs), Ocean Tankers, led by Mr Evan Lim, is one of the world's largest operators.

Ocean Tankers, which is also planning to undertake a debt revamp, is facing a major dilemma with the bills of lading it had issued; HLT had nominated vessels chartered or operated by Ocean Tankers for a majority of its trades.

Ocean Tankers issued bills of lading for the trades which are held by "various parties in the sale or banking chain", including HLT's bank lenders.

"Some of these cargoes under these bills of lading may have been discharged against instructions or letter of indemnity issued by HLT. OTPL (Ocean Tankers) may be liable, as the issuer of the bills of lading, to the lawful holders for the loss of the cargoes," said Mr Evan Lim.

"Although OTPL may be able to look to HLT for an indemnity against such liability, it is unlikely that HLT is currently in a position to meet such an indemnity."

As a result, he said the company faces a "real and immediate risk" that holders of the bills of lading could issue writs against and arrest its vessels. Already, ICICI Bank - one of HLT's bank lenders - has issued writs against two Ocean Tankers vessels.

READ MORE: Bankers spurn Asia commodity traders in credit squeeze

Amendment note: An earlier version of this story stated that HLT reported positive equity of US$4.6 billion for the year ended October 2019 - this figure actually includes assets and liabilities. HLT had in fact reported positive equity of nearly US$510 million for the year.