Singapore bunker supplier Brightoil Petroleum (S’pore) Pte. Ltd. (BOPS), an indirect wholly owned subsidiary of Hong Kong-listed Brightoil Petroleum (Holdings) Limited (Brightoil/Company), will be disposed at a future date, says the Board at Brightoil.

“The business operation of the BOPS was ceased,” it stated on Friday (31 January) in an update on the Hong Kong Stock Exchange.

“In view of the above issues and with a view to resume trading which would bring best return to Shareholders, the Board considers that it is most appropriate and in the Shareholders’ interest to delineate the Group from BOPS through disposal of the Company’s interest in BOPS.

“After the proposed Disposal of BOPS, the Remaining Group would comprise mainly the upstream oil and gas production business, the business model of which is different from the oil/gas trading business of BOPS.”

The update described key findings of a forensic review conducted by RSM Corporate Advisory (Hong Kong) Limited (RSM) regarding certain oil trading transactions of BOPS.

PricewaterhouseCoopers (HK) (PwC), the former auditor of Brightoil, earlier expressed  concerns in relation to certain transitions made between BOPS and several specific customers where seven were new customers to BOPS.

PwC had made the following observations:

1. nine of the Subject Customers might be related owing to common registered and/or correspondence addresses;
2. the corresponding purchases of the sales transactions with the Subject Customers were made from five Subject Suppliers, including three of the Subject Customers, Shenzhen Brightoil Group Co Ltd. (SZBO), owned and controlled by Dr. Sit, the ultimate controlling shareholder of Brightoil, and another entity;
3. there were multiple transactions of potentially the same cargos of oil; and
4. there were substantial amount of accounts receivables due from the Subject Customers outstanding as at 30 June 2017 whereas other substantial sums of accounts receivable were netted off against accounts payables due to SZBO via tri-parties agreements.

In its review, RSM noted SZBO being involved in various back-to-back transactions providing discounts ranging from 3% to 10% in BOPS’s purchase transactions, which directly translated to the profit of BOPS.

While BOPS’s profit retained would be financially beneficial to the Group, the discount given by SZBO did not appear to be at arm’s length.

In addition, other than SZBO, RSM noted certain customers were also involved in back-to-back transactions, including, the “structured deals” which the relevant parties gained nil or relatively insignificant profit from them.

“This leads to the next matter as to whether the trades in the structured deals were dealt or negotiated simultaneously, perhaps pre-arranged or pre-matched,” stated the update.

“If this was not pre-arranged, the counterparties would have the liberty to find the next buyer down the chain, and hence the transactions might not have resulted in circular transactions.

“If the trades were indeed dealt simultaneously as if planned or pre-arranged, RSM found certain indication during the forensic review which might suggest that the Group or the SZBO Group had managed (or at least had knowledge) to get the counterparties to enter into the trades.

“Since the Group have ceased or substantially reduced many of its trading business since 2018 and most management of BOPS have resigned.

“The current management has no knowledge but suggested that this would not be possible and based on the information currently available, RSM is unable to ascertain or form a conclusive opinion at this stage.”

The full disclosure of RSM, remedial actions to be taken by the Board of Brightoil, and more, can be found in the following link here.

Related: Brightoil publishes unaudited financial results for FY 2017, 2018, 2019
Related: PricewaterhouseCoopers resigns as auditors of Brightoil Petroleum
Related: HKSE probes ‘management integrity’ of Brightoil Petroleum Holdings
Related: Brightoil faces $161 million claim from China Petroleum Pipeline Engineering
Related: Official: Dr Sit Kwong Lam leaves Brightoil Petroleum Holdings
Related: Petrolimex Singapore wins USD 30 million bankruptcy order against ex-Brightoil Chairman
Related: Hong Kong: Dr Sit Kwong Lam returns to Brightoil as Strategic Adviser

Earlier developments of Brightoil (since late 2017 to date) can be found in the search results here. 

Photo credit: Brightoil
Published: 4 February, 2019