SINGAPORE (BLOOMBERG) - Two Singapore-based oil traders have rushed to quell growing concerns about their financial stability amid the fallout from the sudden demise of Hin Leong, which owes its lenders almost US$4 billion (S$5.7 billion).
ZenRock Commodities Trading Pte Ltd and Winson Group, which buy and sell fuels such as gasoil and bunker oil across Asia, said in separate statements on Thursday (April 23) that their financial positions were sound, and that neither of them had open-account dealings with Hin Leong. Police in the city-state have started investigating the company that owes money to more than 20 banks.
ZenRock said that it was not under statutory or insolvency protection, according to its emailed statement. The company has been affected by slowing Chinese demand, the global coronavirus lockdown, oversupply and negative prices, but believes it has "the ability and experience to work through them profitability," it said in the statement.
Anxiety has spread across the commodities trading hub of Singapore as global banks become increasingly cautious about lending to the sector after a historic crash in crude prices amid a collapse in demand. Investors have seen their oil bets wiped out, and the outlook for the market remains bleak as a global glut expands and storage space - both onshore and on tankers - nears capacity.
In open-account trades, a seller doesn't require its buyer to hand over a letter of credit before the exchange of a cargo's ownership, and will release the shipment without payment guarantees from a third party such as a bank. These transactions are typically reserved for trusted and credit-worthy counterparties as they don't protect the seller from any defaults or non-payments.
Banks have been more closely scrutinizing and assessing their exposure to the oil sector, preferring to divert funds to other markets such as pharmaceutical and healthcare that are deemed to have lower risks. A reduction in the amount of financing given to oil traders, the lifeblood of commodities trading, could be crippling for the sector and especially smaller, less credit-worthy companies.