Debt-ridden oil trader Hin Leong wants to hand control to PwC; Sembcorp unit cancels gasoil deal

Hin Leong, founded in 1963 by Lim Oon Kuin, applied April 17 for court protection from its lenders after banks demanded repayment of loans. PHOTO: BUSINESS TIMES

SINGAPORE (BLOOMBERG, REUTERS) - Tycoon O.K. Lim and his family are set to hand over management of the company he founded in 1963 to PricewaterhouseCoopers (PwC), deepening the demise of an empire he built into one of Singapore's most powerful oil traders.

Hin Leong Trading (Pte) Ltd, saddled with US$3.85 billion (S$5.5 billion) in debt, plans to shift management of the company away from its founding family to the accounting firm while withdrawing an application for court protection from creditors.

PwC is poised to act as a so-called interim judicial manager to help oversee the company's finances and negotiate with creditors, said sources, who declined to be identified because the process is confidential. Hin Leong's 23 bank creditors include HSBC Holdings, ABN Amro Bank, Societe Generale and Singapore's three biggest banks.

Representatives for Hin Leong and PwC couldn't immediately be reached for comment.

Separately on Wednesday, Sembcorp Industries said that its subsidiary Sembcorp Cogen had terminated a gasoil supply and storage agreement with Hin Leong Trading.

Sembcorp Cogen entered the deal with HLT in 2009 under which it bought gasoil reserves, for which Hin Leong provided storage and management services on its behalf.

Singapore's Energy Market Authority (EMA) requires Sembcorp Cogen to have enough gasoil reserves for at least 60 operating days under the terms of its electricity generation license. At least 30 days of the operational reserves must be located at Sembcorp Cogen's generating premises or on a site approved by the EMA regulator, Sembcorp Industries said.

The carrying book value of the gasoil reserves stored with Hin Leong was $94 million ($66 million) as of Dec 31, last year, Sembcorp said in a statement on the Singapore Exchange.

"Given the recent news reports relating to HLT and the moratorium, Sembcorp Cogen has taken steps to protect its interests over the gasoil reserves and had terminated the gasoil supply and storage agreement," Sembcorp said.

The move to have accountants at PwC run the oil trader effectively takes management control away from the family, who would have remained in charge under a court protection process. Hin Leong enlisted PwC as one of its financial advisers when it filed the application for a debt moratorium from Singapore's High Court.

"Sometimes where there are concerns over the effectiveness or propriety of current management running the company, creditors may seek for a judicial management instead where a third party steps into the role of running the company," said Baldev Bhinder, the managing partner of Singapore-based law firm Blackstone & Gold, which specializes in commodity and energy.

BANK CREDITORS

Hin Leong, founded in 1963 by Lim Oon Kuin, known as O.K. Lim, applied April 17 for court protection from its lenders after banks demanded repayment of loans as oil prices crashed and the coronavirus swept across the globe.

In filings seen by Bloomberg, the company said it also hid about US$800 million (S$1.14 billion) in losses incurred from futures trading over the years on orders from Lim. The firm sold some of the millions of barrels of fuel it had used as collateral to secure loans from its banks, according to the documents.

The Singapore police force is now investigating the company while the Monetary Authority of Singapore, the nation's financial regulator and central bank, has been in contact with Hin Leong's bank creditors, according to people familiar with the matter.

Deloitte & Touche, the oil trader's auditor, said on Wednesday it stands behind its work.

"Our audit was performed with the highest standards of audit and compliance with the information made known to us at the time," a Deloitte spokesperson said in a statement.

Hin Leong is expected to withdraw its application for court protection under Section 211B of Singapore's Companies Act, and apply for judicial management in a virtual court hearing over the next week, according to one of the people.

LEGAL PROTECTION

While the application for judicial management could take months, PwC will act as the interim manager in the meantime, the person said. Ocean Tankers (Pte) Ltd, an affiliate of Hin Leong, will continue its application for court protection, the person said.

A judicial management is a form of debt restructuring where an independent manager is appointed to supervise the affairs, business and property of a company under financial distress. The process temporarily shields the company from legal proceedings, giving it a chance to rehabilitate.

Eight banks with some of the bigger loans to the firm have formed a working group to handle debt negotiations, and is appointing Drew & Napier to represent them, according to people familiar with matter. HSBC is the largest creditor, with US$600 million owed, followed by ABN Amro, DBS Group Holdings and Oversea-Chinese Banking Corp.

In an April 14 presentation to the creditors, Hin Leong said the debt recovery rate stood at 18 cents on the dollar, signaling massive potential losses for the banks.

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