- Pradeep Rajan
- Singapore oil trader Hin Leong faces liquidity issues as banks tighten credit lines: sources
Singapore-based oil trading, storage and shipping company Hin Leong Trading (Pte.) Ltd. is facing liquidity issues and is unable to expand existing credit lines with its banks, according to multiple traders and market sources.
The liquidity issues come in the wake of a historic oil price crash that saw Brent crude collapse to less than $23/b from nearly $69/b at the start of this year, due to coronavirus-related demand destruction and the rift between Riyadh and Moscow that affected OPEC's production cuts.
Front-month June ICE Brent futures were trading just under $33/b Monday afternoon in Asia.
Traders said many market players were caught on the wrong side of the oil price collapse, as they had been stockpiling low sulfur fuels and middle distillates for weeks before the International Maritime Organization's new sulfur rules kicked in on January 1, 2020.
Hin Leong has been having difficulty issuing additional letters of credit for the last few days, and its counterparties are still watching the situation as it appears to be negotiating with its banks, a manager of a Singapore-based bunker trader that buys fuel from the company said, but declined to be named.
The source said since his company owes money to Hin Leong for bunker fuel purchases, it will be directly impacted by liquidity issues at the oil trader and it may choose to withhold payments until the situation is clearer.
Hin Leong did not reply to an email seeking clarification last week.
A source with Hin Leong said: "I don’t know what's going on. You need to check with the people who are saying these things. Even with Hin Leong sometimes I don't know [what's going on]."
Separately, other market sources said Hin Leong's lenders, including banks, were discussing the credit situation or tightening credit and not extending any more credit without tangible collateral that can be easily liquidated.
"[Credit lines] are frozen, so they're not liquid,” a source added.
Hin Leong is one of Singapore’s largest homegrown independent oil traders that has operated as a family-run business under billionaire Lim Oon Kuin, also known in trading circles as OK Lim, who is a regular on the Forbes list of Singapore's richest people.
The Lim family operates a marine bunkering business under its subsidiary Ocean Bunkering Services (Pte.) Ltd., one of Singapore’s largest tank farms under Universal Terminal, and a fleet of ships under its shipping subsidiary Ocean Tankers Pte Ltd.
Hin Leong was one of the first international companies to work with state-run PetroChina in oil storage and physical oil trading outside China, and has been a large-scale supplier of refined products in Southeast Asia, using its fleet of tankers for regional trade and floating storage.
Market participants raised concerns that major liquidity issues at Hin Leong could have a ripple effect similar to the collapse of OW Bunker a few years ago, which sent shockwaves through the bunkering industry, including ship arrests and payment disputes.
The repercussions could be much worse though as several oil traders risk similar losses running into billions of dollars, and given current market conditions, liquidity across sectors is drying up. But market participants also said a diversified company like Hin Leong has a much larger asset base like its tankers and storage facilities, and access to multiple options among Singapore's local conglomerates.