Hin Leong’s Collapse Sends Shockwaves Through Singapore

Negative oil prices weren't the only factor that doomedHin Leong.

Singapore’s financial and trading community was in a state of shock last week when Hin Leong—one of the city-state’s biggest and longest-established oil trading firms, of almost 60 years standing—collapsed into administrative supervision after sustaining heavy losses on its oil trading activities.

Hin Leong is one of Southeast Asia’s biggest economic casualties created by the Covid-19 pandemic and the sudden evaporation of aggregate demand.

The slump in global demand pushed the price of US oil futures down to $0 and then into negative territory as traders scrambled to pay for storage of their oil rather than accepting physical delivery as would occur under normal trading conditions. Futures on the benchmark West Texas Intermediate for May delivery changed hands early this week at negative $37.63 per barrel as the most extreme point of the downside price action.

Negative oil prices wrecked Hin Leong’s balance sheet but its collapse calls into question Singapore’s top-tier status as a global commodities trading hub alongside Houston, London and Geneva due to concerns over lax regulation and possible corruption.

Just over a week ago, Hin Leong revealed heavy, undeclared losses (roughly $800 million) related to trading in oil futures contracts that appear to have been hidden from the company’s official accounts over the past few years. When the company was placed under judicial management through accounting firm PwC, its existing oil positions were valued at approximately $170 million and its cash on hand at $50 million.

Singapore’s authorities are investigating Hin Leong in what could be a case of fraud since Deloitte signed off on last year’s financials within which the futures trading loss appears to have been hidden. Billionaire Lim Oon Kim—known locally in Singapore as OK Lim—who founded Hin Leong in 1963 as a simple operation supplying gasoline to fishing boats has been ousted from the company’s management while court proceedings progress.

Some 23 banks had exposure to Hin Leong, including foreign banks HSBC, ABN Amro and Societe Generale, which are on the hook for a combined $1.4 billion while Singapore’s big three banks—DBS, OCBC and UOB—face $610 million of exposure. It promises to be one of Asia’s biggest debt restructurings, involving nearly $4 billion of bank debt. 

Severe haircuts loom for exposed lenders, with the company telling creditors when its parlous financial situation first emerged on April 14 that a settlement of 18 cents on the dollar was the likely outcome of any debt workout process.

Hin Leong joins major commodity trading firms Agritrade International Pte Ltd and the Noble Group in a string of collapses in the last few years hitting Singapore’s commodities sector. This case raises questions about lending standards within Singapore’s banking industry since Hin Leong having apparently sold millions of barrels of oil to use as collateral to secure bank loans.