Hin Leong files for JM; SCI acts to safeguard gasoil at HL unit

PRESSED for time as it grapples with a debt pile of US$4 billion, Singapore's giant oil trader Hin Leong Trading (HLT) has pulled out its application to the court for a debt moratorium and decided instead to go down the judicial management path, according to sources.

The Business Times understands that PricewaterhouseCoopers (PwC) LLP, the accounting firm that was hired by the trader to help fix its dire financials and "protect and preserve its assets and cash", will be appointed as interim judicial manager.

The move has surprised some market watchers. "It puzzles me. There are very good reasons to stick to section 211B (of the Companies Act that involves a moratorium order)," said Robson Lee, a Singapore-based partner at Gibson, Dunn & Crutcher.

"JM (judicial management) is a blunt instrument that works in limited situations. The hard truth is that JM is value destructive since management - with its know-how, connections and technical expertise - is abruptly displaced by accountants who lack the relevant domain knowledge," Mr Lee added. Last week, Hin Leong told all 23 lenders that were exposed to the firm that if they opposed the debt moratorium application under section 211B of the Companies Act, it would file applications for judicial management and/or interim judical management.

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In that letter dated April 17, HLT's director Evan Lim Chee Meng - son of the group's founder, billionaire Lim Oon Kuin also known as OK Lim - said the firm was fully prepared to abide by the position of the bank lenders.

Things appear to have worsened rapidly since for cash-strapped Hin Leong as it seeks to restructure crippling debts brought to bear by an oil crash. The developments have transfixed players in the city state's mammoth oil trading and bunkering space - and a key global hub.

As at April 9, 2020, HLT's total liabilities were about US$4.05 billion, whereas it has some US$714 million in assets.

A probe by Singapore's Commercial Affairs Department (CAD) into the group has further deepened its crisis amid news that the trader had failed to disclose US$800 million of losses from futures trading in its financial statements.

Meanwhile, on Wednesday, Sembcorp Industries (SCI) said its wholly owned power generation unit has scrapped a more than decade old gasoil supply and storage (GSS) deal with embattled HLT to safeguard its interest.

The carrying book value of the gasoil reserves that Sembcorp Cogen has stored with HLT as at end-2019 stood at S$94 million, said SCI in an announcement on Wednesday.

Court documents filed last Friday for the moratorium order revealed that SCI had issued a notice to HLT, demanding that the cargo (gasoil) is not discharged and that its inventory is consolidated into dedicated tanks and demarcated.

The documents also reveal that Sembcorp Cogen's gasoil inventory was stored at Universal Terminal, a commercial storage facility in Singapore's Jurong Island, which Hin Leong co-owns with China's oil giant PetroChina and Macquarie Asia Infrastructure Fund (MAIF).

HLT also provides storage and management services for the gasoil reserves on behalf of Sembcorp Cogen, said SCI.

Sembcorp Cogen had inked the GSS agreement with HLT in 2009 to comply with the licence requirement by Singapore's Energy Market Authority (EMA) to have enough gasoil reserves to last at least 60 days of operations. At least 30 days of the operational reserves must be located at Sembcorp Cogen's generating premises or on a site approved by EMA.

"Given the recent news reports relating to HLT and the (debt) moratorium, Sembcorp Cogen has taken steps to protect its interests over the gasoil reserves and had terminated the GSS Agreement," said SCI, adding that it has notified EMA of the situation.

Anita Gabriel

23 April 2020