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Singapore oil trader Hin Leong's founder OK Lim blamed for derivatives, inventory losses - filing

Highlights

Hin Leong suffered $800 million in unaccounted derivatives losses

OK Lim instructed sale of most inventory that was collateral for bank lenders

Ocean Tankers exposure to Hin Leong's trades as much as $2.67 billion

Ocean Tankers and Hin Leong Trading working on debt restructuring plan

Singapore — Singapore oil trader Hin Leong Trading Pte. Ltd.'s founder Lim Oon Kuin has been blamed for financial mismanagement and reselling of inventory that was used as banking collateral, causing losses running into billions of dollars, in a court filing by his son Lim Chee Meng seen by S&P Global Platts.

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The filing dated April 17 is an application for a six-month debt moratorium for another Lim family company, Ocean Tankers Pte. Ltd., under Section 211B of Singapore's Companies Act, which gives a company protection from debtors.

It details the financial difficulties at Hin Leong Trading that are the basis for Ocean Tankers to seek court protection, and is signed by Lim Chee Meng, also known as Evan Lim, who serves on the board of directors for both Hin Leong Trading and Ocean Tankers.

Billionaire oil trader Lim Oon Kuin, also known as OK Lim, has resigned from all his executive roles at Ocean Tankers, Hin Leong Trading, the Xihe Group and related companies, effective April 17, 2020.

Hin Leong Trading has been in a financial crisis in recent weeks due to trading losses on the back of its lenders withdrawing credit lines, the collapse in oil prices, the impact of the coronavirus outbreak on businesses, lack of hedging policies and existing losses on its books, the filing said.

It said Hin Leong Trading, or HLT, had a positive equity of $4.56 billion and a net profit of $78.2 million in its financial year ended October 31, 2019.

"In truth, however, HLT has not been making profits in the last few years. HLT has suffered about US$800 million in futures losses over the years, but these were not reflected in the financial statements," Evan stated in the application.

"I am not personally aware of how and why these losses were not reflected, as I was not involved in the finance function which was supervised by my father. I understand from my father that he gave instructions to the finance department to prepare the accounts without showing the losses and told them he would be responsible if anything went wrong," he added.

"I signed off on HLT's financial statements on the instructions of my father," Evan said.

He said in addition to accumulating paper market losses, OK Lim instructed Hin Leong Trading to sell a substantial part of its inventory for company funds even where the inventory was collateral for bank lenders. Hin Leong Trading is one of the largest traders of gasoline, gasoil and marine fuel in Asia.

"As a result, there is a large shortfall of inventory as compared to the quantum of inventory which has been secured in favor of the bank lenders who had provided inventory financing. I was not involved in the decisions to effect the disposals, which were made by my father," the document stated.

Evan Lim did not respond to emailed queries.

DEBT RESTRUCTURING

Hin Leong Trading's financial losses have heavily impacted Ocean Tankers' business as the trading firm nominates Ocean Tanker's ships for a majority of its trades, and the holders of bills of lading and banks who had extended credit using fuel inventory in its floating storage vessels were asking for payment.

The cargoes under the bills of lading were discharged by Hin Leong, and Ocean Tankers as the issuer of the bills of lading was still responsible for the loss of these cargoes. Additionally, lenders had also issued loans on inventory in floating storage units operated by Ocean Tankers.

But "most if not all of the inventory has been sold by HLT at my father's instructions and can no longer be delivered to the holders of the bills of lading," Evan wrote.

Ocean Tankers estimated that its exposure to lenders for inventory in storage could be as high as $600 million, and claims by trading counterparties such as PetroChina (Singapore) Pte. Ltd. who hold bills of lading for cargoes shipped on Ocean Tanker vessels could be as high as $2.07 billion.

It said Ocean Tankers will be unable to pay its debts if these demands were to arise.

For instance, ICICI Bank had already issued writs against the vessels Wu Yi San and Chang Bai San with a cargo owner's claim, and the banks Societe General and ABN AMRO issued a charge on Hin Leong's assets and book debts as far back as March, according to corporate filings seen by S&P Global Platts.

Ocean Tankers said in order to protect the company, it was working on a debt restructuring plan that could be combined with that of Hin Leong Trading and which will comprise capital raising through debt financing, sale of assets, or injection of fresh equity by strategic investors.

This could also include the injection of assets by the Lim Family, such as its shares in the Xihe Group that handles ship financing and Universal Group Holdings (Pte.) Ltd., which has a stake in the Universal Terminal tanks farms in Singapore.

Ocean Tankers has appointed Rajah & Tann Singapore as legal advisors. Hin Leong also appointed Rajah & Tann Singapore as legal advisors for its debt restructuring. Rajah & Tann did not respond to email queries on Hin Leong and OK Lim's finances.

Hin Leong Trading