HSBC Targets Singapore Oil Trader ZenRock Over Finance Deals

(Bloomberg) -- HSBC Holdings Plc, already on the hook for $600 million in loans to fallen Singapore oil giant Hin Leong, has taken steps to oust the management at another energy firm, claiming it used the same cargo to secure financing from multiple banks.

Europe's biggest lender filed an application to Singapore's High Court on May 4 to put ZenRock Commodities Trading Pte Ltd. under so-called judicial management, a form of debt restructuring in which a third party runs the company, according to people with knowledge of the matter.

London-based HSBC alleges ZenRock used the same oil cargo as collateral for several credit facilities, according to people familiar with documents filed to the court supporting the application. HSBC declined to comment.

Singapore-based ZenRock didn't respond to multiple attempts to seek comment via calls and messages. In response to market speculation over its financial status, ZenRock released a statement last month saying it's 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, according to one of the people.

Multiple Loans

HSBC's 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 Plc and Citigroup Inc. in 2014 lost millions after a Chinese metals trader pledged the same stockpile three times.

HSBC and other banks are stepping up efforts to avoid further losses related to commodities trading after the downfall of Hin Leong Trading (Pte) Ltd., the storied Singapore oil trader that owes 23 banks almost $4 billion. HSBC has the most exposure to Hin Leong as part of its $2 billion oil-trading loan portfolio. Its ZenRock credit is less than $55 million, according to a person familiar.

The ZenRock case underscores the mounting tensions between traders and banks, all suffering from a combination of plunging oil prices and an historic slump in crude demand due to the pandemic. Banks traditionally offer credit lines in trade finance deals, the lifeblood for the global commodities trading industry that moves millions of cargoes of food, metals and fuel every year.

ZenRock has trade financing facilities with other lenders aside from HSBC, including Natixis SA, and Oversea-Chinese Banking Corp., according to the company's profile at the Singapore Accounting and Corporate Regulatory Authority. Representatives for these banks declined to comment. ZenRock has repaid debts owed to ABN Amro Bank NV as of April 23, according to a filing to the accounting regulator.

The collapse last month of Hin Leong came just weeks after banks, including ING Groep NV, moved against another Asian trading house, Agritrade International Ltd. Hontop Energy Pte., an oil trader linked to a Chinese refiner, entered receivership around the same time, blaming cratering demand due to the coronavirus pandemic.

The failures are happening against a backdrop of the most volatile and unprecedented oil-price swings in history. West Texas Intermediate futures traded negative for the first time in April. That's complicating the ability of traders and banks to hedge transactions.

Veteran Traders

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 Chinese state-owned oil titan Sinopec, and Lin was previously at Vitol SA, 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 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 latest annual financial statement on Singapore's accounting regulator website.

HSBC proposed that KPMG LLP lead the process to oversee ZenRock, according to the people familiar. A pre-trial conference is scheduled for June 11, said the people, who asked not to be identified as the matter is private.

Trading Losses

Banks are becoming more cautious on the sector in the wake of the Hin Leong demise. In the biggest scandal to hit the sector in a generation, Hin Leong's founder hid about $800 million in futures trading losses while also selling oil inventories pledged in loans, according to court documents.

A who's who of trade finance banks are now on the hook for potential credit losses from Hin Leong. HSBC, Standard Chartered, and CIMB Group Holdings Bhd. have all taken commodity trading loan-loss provisions. HSBC last week reported a $700 million increase in expected credit losses in Asia, mostly tied to a single name in Singapore. It declined to name the company.

©2020 Bloomberg L.P.

With assistance from Bloomberg