SINGAPORE (BLOOMBERG) - HSBC Holdings alleged Singapore oil trader ZenRock Commodities Trading Pte Ltd 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.
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 (S$69.3 million), according to the documents.
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."
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.
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 and Citigroup 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. Xie used to work for Unipec, the trading arm of Chinese state-owned oil titan Sinopec, and Lin was previously at Vitol, 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 has offices in Singapore, Shanghai, Zhoushan and Geneva.
The firm posted revenue of US$6.15 billion in 2018, compared with US$1.24 billion in 2016, according to its latest annual financial statement on Singapore's accounting regulator website.