The turmoil engulfing Singapore’s oil trading community deepened on Friday as the country’s police force raided the office of ZenRock Commodities Trading Pte Ltd following allegations made by HSBC Holdings Plc that the company was involved with a number of “dishonest” transactions.
The raid comes just weeks after the implosion of legendary fuel trader Hin Leong whose founder said the company hid millions in losses and secretly sold some of the oil inventories it had pledged as collateral for loans.
Europe’s biggest lender filed an application to Singapore’s High Court on May 4 to put ZenRock under so-called judicial management, a form of debt restructuring in which a third party runs the company. The bank said it has lost confidence in the management of the company and its ability to pay its debts to the bank, which amount to almost US$49 million, according to the documents.
HSBC said it believes the trader may have wrongfully diverted payment of funds that should have been paid directly to the lender “and/or dissipated these funds beyond the reach of the bank”
HSBC said it cannot discuss matters under legal proceedings. Nobody from Singapore-based ZenRock responded to multiple attempts to seek comment via calls and messages.
HSBC said it has reason to believe that ZenRock provided false and/or fraudulent transaction documents in its loan applications to the bank. It also said it believes the trader may have wrongfully diverted payment of funds that should have been paid directly to the lender “and/or dissipated these funds beyond the reach of the bank.”
The Singapore police said it was “inappropriate to comment’ on the matter while nobody answered calls or messages to ZenRock’s management. HSBC confirmed the court had granted its application for the appointment of interim judicial managers in relation to ZenRock. KPMG confirmed its appointment but declined to comment further “on account of on-going investigations by the Singapore Police.”
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HSBC said it understands that the company’s total debt to institutional lenders stands at about US$165 million, according to the documents.
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, a person said on Wednesday.
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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 US$4 billion. HSBC has the most exposure to Hin Leong as part of its US$2 billion oil-trading loan portfolio.
ZenRock was established in 2014 in Singapore by a group of veteran oil traders including Xie Chun and Tony Lin.
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.
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The firm posted revenue of US$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.
