Global energy and commodity price reporting agency Argus Media on Friday (8 May) published an update on the recent Zenrock Commodities Trading troubles, exposing some details of HSBC’s accusations:
UK bank HSBC has accused Singapore oil trading company Zenrock Commodities Trading of dishonestly obtaining multiple sources of financing for crude cargoes, according to court documents seen by Argus.
HSBC filed a court application on 4 May to place Zenrock under judicial management, a form of debt restructuring, to recover funds it said it is owed.
Zenrock has outstanding debts to HSBC of around $49mn and owes a total of around $165mn to lenders, the court filing alleges. HSBC said it believes the company is unable to pay its debts.
Neither Zenrock nor HSBC responded to requests for comment. The case is due to be heard in Singapore’s Supreme Court today.
The collapse in oil prices this year has caused a fall in the value of the oil and related products that Zenrock uses to secure bank facilities to finance its trading activity, HSBC said in the court filing. This has led many banks to require oil trading companies to provide cash to cover their outstanding liabilities, or to stop extending fresh financing altogether.
This “inability to raise fresh financing has exposed certain trade practices by [Zenrock] which appear on their face to be shams, or at the very least, extremely suspicious,” HSBC said.
It accused Zenrock of using the same cargo to obtain double or multiple financing from lenders, by issuing duplicate invoices with different payment instructions.
The court documents give two examples of what HSBC described as “highly dishonest transactions”, both involving cargoes of Djeno crude booked since February. Medium sweet Djeno crude is produced in Congo (Brazzaville). The details of the transactions could not be confirmed.
HSBC filed a police report against Zenrock in Singapore at the end of April, the documents show.
Zenrock traded over 15mn t of products in 2019. It is mainly active in oil product markets, particularly middle distillates, but also has a presence in crude and petrochemicals. The company last month acknowledged it was facing “adverse conditions” because of the impact of slowing demand in China, the Covid-19 pandemic and oversupply of oil, but said it believed it had the ability and experience to work through these issues profitably. It has not made any comment since HSBC filed its court case.
Zenrock’s problems are the latest blow to Singapore’s trading sector following the collapse of domestic oil trading company Hin Leong, which filed for court protection last month with net liabilities of over $3bn.
The Monetary Authority of Singapore said last month it was watching developments related to Hin Leong and “has reminded banks not to de-risk indiscriminately from the bunkering and oil trading sectors”.
Photo credit and source: Argus Media
Published: 11 May, 2020
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