Singapore Police Raid Oil Trader After HSBC Allegations

(Bloomberg) -- 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.

The revelations have rocked the close-knit oil trading community in Singapore, one of the world’s most important commodity hubs, and exposed the risks to banks that finance the opaque business of moving raw materials around the planet.

They also point to a widening fallout from the crash in oil prices triggered by the coronavirus, as a collapse in demand shakes the energy industry to its core.

Singapore’s police raided ZenRock’s office following a hearing in the High Court on Friday concerning HSBC’s application that the trader be placed under judicial management, a form of debt restructuring in which it’s run by a third party, according to people familiar with matter. Executives from KPMG LLP were appointed to lead the process to oversee ZenRock, said the people, who asked not to be identified because they’re not authorized to speak publicly.

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.”

HSBC has alleged that the trader was involved in a series of “highly dishonest transactions” that included the company using the same cargo of oil to obtain more than one loan from banks, according to court documents seen by Bloomberg. The bank reported ZenRock to Singapore’s Commercial Affairs Department on April 28, according to the documents.

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 $49 million, according to the documents filed to Singapore’s High Court on May 4.

HSBC said it has reason to believe 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 court documents cite a number of trades in which HSBC claims ZenRock used the same cargo of oil to secure financing from at least two banks including the London-based lender. In one of the examples, HSBC said it issued a letter of credit to ZenRock to buy a cargo of Djeno crude from Azerbaijan’s state owned oil company Socar, which the trader then sold to France’s Total SA. But HSBC claims it didn’t receive payment and found ZenRock instructed Total to pay a different bank for another loan backed by a cargo of crude on the same vessel of the same size and loading period.

There is no suggestion of impropriety on the part of Total or Socar. “Our policy is to comply with the confidentiality provisions of our trading contracts,” Socar spokesman Ibrahim Ahmadov said by email. “We can confirm that there are no outstanding obligations from ZenRock to Socar Trading.” Total declined to comment.

HSBC said it understands that the company’s total debt to institutional lenders stands at about $165 million, according to the documents.

HSBC’s claim against ZenRock comes as Europe’s biggest lender faces even bigger losses from the implosion of Hin Leong Trading (Pte) Ltd. Of the more than 20 banks owed almost $4 billion by the fabled trader, HSBC was said to have the biggest exposure at about $600 million.

Just a few weeks ago, ZenRock released a statement in response to speculation over its financial status, 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.

The 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.

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 it has offices in Singapore, Shanghai, Zhoushan and Geneva.

It 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.

©2020 Bloomberg L.P.