Oil trader Hin Leong tell debtors to pay banks, cancels bunker supplies from Apr 18

Embattled Singaporean oil trader Hin Leong Trading Pte. Ltd. has started asking its debtors to make payments directly to its banks instead of the company, while its bunkering subsidiary has cancelled all fuel deliveries from April 18, according to counterparties and traders.

The developments signal changes in day-to-day operations of Hin Leong, which began facing credit issues over a week ago and is deeply embedded in petroleum storage, fuel supply and shipping activities in Asia's largest oil trading hub Singapore.

Hin Leong sent notifications to its customers this week to make any overdue payments to its banks, departing from the regular practice of making payments into the company's accounts, a manager at one of its customers said, who declined to be identified.

Separately, its bunkering subsidiary Ocean Bunkering Services or OBS, which is one of the top three bunker suppliers in Singapore, cancelled all its bunker spot sales for delivery from April 18, bunker traders said Thursday.

"Currently, OBS is still operating but they are not offering any new deliveries," a Singapore-based bunker trader said.

Hin Leong and its marine division did not respond to queries.

"Some shipowners may be taking the opportunity to cancel the bunker orders themselves because they want to distance themselves from what is going on with Hin Leong," another Singapore-based bunker trader said, but added that such a move wasn't necessary as long as the cargo was delivered.

Ocean Bunkering Services was Singapore's third-biggest accredited bunker supplier by volume in 2019, and the biggest in 2018, according to the Maritime and Port Authority.

On average, it sells around 500,000-700,000 mt/month of bunker fuel in Singapore, accounting for up to 17% of the country's average monthly sales of 4 million mt. It also operates 14 bunker barges.

MARKET IMPACT

Despite the size of Ocean Bunkering Services, market participants don't expect the cargo cancellations to have a big impact due to ample supply.

"Demand was pretty weak from March till now and shipowners have been buying only the bare minimum because of the coronavirus pandemic. OBS' cancellations will probably only affect the market for a short period of time," a bunker trader said.

Some traders expect a slight uptick in demand for IMO-compliant low-sulfur bunker fuel this week but said that most traders and shippers will be looking for prompt deliveries. Others expect some difficulties in barge availability in coming weeks as other suppliers try to fill in for Ocean Bunkering.

"Some of OBS' orders were farmed out to other physical suppliers as well so you are not going to see sudden widespread demand [for bunker fuel]," a trader said.

Overall supply and demand fundamentals in the Asian fuel oil market have not changed since Hin Leong's financial issues were reported.

"In the short term, the delivered bunker market will be tight. But the cargo market is still fundamentally weak. Demand is very weak," a fuel oil trader said.

Singapore's commercial onshore residue stocks remain high at 24.541 million barrels (3.87 million mt) as of April 15, Enterprise Singapore data showed. In addition to this, 5 million-6 million mt of low sulfur fuel oil is sitting in floating storage.

Hin Leong typically buys finished-grade fuel oil in the Platts Market on Close assessment process, as well as outside the process, and sells it to the bunker market. It bought 280,000 mt of Marine Fuel 0.5% sulfur and 20,000 mt of 380 CST for April loading in the Platts MOC process, data showed.

BAD DEBTS

Hin Leong's credit lines were frozen by a group of its lenders last week, triggering liquidity issues and raising concerns about losses among top oil traders due to the oil price collapse.

Hin Leong owed a total of $3.85 billion to more than 20 banks, according to multiple market sources. Out of this, $2.85 billion (around S$4 billion) was already due and the remaining $1 billion was due at the end of the year, the sources said.

The Hongkong and Shanghai Banking Corp Lts or HSBC has the largest exposure to Hin Leong at $600 million, followed by ABN AMRO with $300 million and Societe Generale with $200 million. Singapore's main banks with exposure are DBS with $300 million, OCBC with $250 million and UOB with $120 million, sources said.

HSBC and DBS declined comment, while ABN AMRO and OCBC did not immediately reply to Platts inquiries. UOB said: "We regret that as part of the Banking Act, we cannot confirm or disclose any information on customer relationships we may or may not have," while SocGen said: "We confirm that we are a lender to Hin Leong. No further comment at this stage."