Singapore oil trader ZenRock placed under judicial management; raided by police
Application was heavily contested even as the troubled company faces a secured debt pile of nearly US$190 million.
The Singapore High Court has granted HSBC Holdings' application to place ZenRock Commodities Trading under judicial management (JM).
KPMG's Martin Wong, Bob Yap and Toh Ai Ling were named the interim judicial managers over the troubled oil trader, following a virtual hearing on Friday spanning over six hours, during which major creditor HSBC's judicial management (JM) application was "heavily contested", The Business Times (BT) understands.
Singapore-based ZenRock faces a secured debt pile of nearly US$190 million. Its secured lenders - which provided mostly short-term credit facilities for letters of credit or trust receipts - include HSBC; Natixis Bank; Crï¿½dit Agricole Corporate & Investment Bank; ING Bank; Bank of China; and Banque de Commerce et de Placements SA, according to court documents seen by BT.
Amounts outstanding as at April 17, 2020, include US$51 million due to HSBC. Of this, US$16.1 million mature on June 23, 2020, although ZenRock expects that it will be unable to make payment as it falls due, court documents show. HSBC on Monday filed the court application to place ZenRock under JM.
Of the six lenders, five were supportive of putting ZenRock under JM, with the exception of Natixis which is owed US$55.4 million and did not take any position, BT understands.
Meanwhile, the Singapore police reportedly raided ZenRock's office this week, after HSBC lodged a report with the Commercial Affairs Department on April 28.
The bank accused ZenRock of "dishonest" or "extremely suspicious" trade practices that came to light after the trader was unable to raise fresh financing, which resulted in HSBC losing confidence in ZenRock's management, according to court documents. For instance, HSBC alleged, ZenRock used the same cargo of oil to obtain multiple loans from its institutional lenders. The bank added that ZenRock "wrongfully diverted" payment of funds which should have been paid directly to HSBC.
BT understands ZenRock has not contested HSBC's allegations in court.
A spokesperson from the Singapore Police Force said in response to BT's queries: "It is inappropriate for us to comment on this matter."
At Friday's hearing, the High Court lifted ZenRock's debt moratorium - which the trader applied for on Wednesday in an attempt to block the JM application. ZenRock was seeking a six-month debt stay, pursuant to Section 211B of the Companies Act, pending a proposed restructuring ideally through a consensual process.
In April, ZenRock had stressed that it was not under statutory restructuring or insolvency protection.
The pre-trial conference for the next JM hearing is set for June 11.
ZenRock is involved in the wholesale trade of crude oil, petroleum products, petrochemical and other products to major oil companies and consumers. It has subsidiaries in China and Switzerland.
In 2019, the ZenRock group made "significant investments" to beef up its trading activities by hiring experienced traders, growing from a trading team of 24 persons as at end-2018 to 31 as at end-2019, court documents stated. Other headcount in the group grew by 19 over the same period to support the increasing business.
However, the oil rout triggered by the coronavirus pandemic has led to a plunge in the value of collateral - usually the cargo traded - securing trading firm's debts. This has prompted banks to require oil traders to provide cash to cover their outstanding liabilities. HSBC said in a court filing that it believes ZenRock has "very little cash available" to meet its outstanding debts. As at Feb 29, 2020, the company had US$26.7 million in bank and cash balances.
Sarjit Singh Gill SC and Daniel Tan from Shook Lin & Bok were lead counsel for HSBC at Friday's hearing, while Chelva Retnam Rajah SC from Tan Rajah & Cheah acted for ZenRock. Tan Chuan Thye SC from Rajah & Tann represented ZenRock in its debt moratorium application. nTan Corporate Advisory has been appointed as ZenRock's financial adviser.
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