Spectacular free fall: What brought down Singapore oil trading giant Hin Leong?
Business Correspondent Grace Leong traces the fall of self-made billionaire Lim Oon Kuin and the unravelling of his empire.
Oil tycoon Lim Oon Kuin founded Hin Leong Trading in 1963 at age 20, with a single truck delivering diesel to fishermen and small rural power producers.
Two years later, he started an oil distribution business as a "one-man-one-truck" oil dealer, selling oil he bought wholesale from major producers to taxi and bus companies and fishing boat operators.
By the time he was 30, the Chinese immigrant, widely known in the industry as O.K. Lim, had built up a fleet of tank-trucks and incorporated Hin Leong in 1973 as an oil trading company.
In 1978, Ocean Tankers was incorporated as a ship chartering and management firm and has become one of the world's largest tanker fleet operators today. Its fleet of more than 150 vessels is largely chartered from the Lim family-owned Xihe Holdings, Xihe Capital and their subsidiaries.
At his peak, Mr Lim made Forbes' 2014 Singapore billionaires list with a net worth of US$1.8 billion. But by April this year, he had dropped off the list after Hin Leong filed for bankruptcy protection and Mr Lim admitted that he directed the firm to hide about US$800 million (S$1.1 billion) in futures trading losses.
A year ago, Mr Lim, 76, was ranked the 18th richest man in Singapore with a net worth of US$1.65 billion.
Hin Leong is now under investigation by Singapore police and several other regulators.
It was placed under interim judicial management in April, owing billions of dollars to 23 banks, as the alleged fraud came to light amid a collapse in oil prices and as the coronavirus swept across the globe.
A report from PricewaterhouseCoopers (PwC) Advisory Services, its interim judicial manager, noted earlier last week that Hin Leong's assets had been "grossly overstated by an astonishing amount of at least US$3 billion" in its fiscal 2019 audited statements.
The overstated sum - US$2.23 billion in accounts receivables and US$800 million in inventory shortfall - "existed to conceal significant losses... accumulated over the years", PwC found.
The US$2.23 billion in accounts receivables have "no prospect of recovery", it added.
With liabilities of US$3.5 billion and assets of just US$257 million, PwC noted that "restructuring of Hin Leong on its own is unlikely to result in a recovery that is better than liquidation. Therefore it is unlikely for the company to be restructured or rehabilitated on a standalone basis".
But there may be some prospect of restructuring if Hin Leong is put together with other firms in the group, and if the Lim family injects personal assets as well, PwC said.
The Lims, who allegedly received dividends totalling US$90 million in the 2017 and 2018 financial years despite Hin Leong not making profits in the last few years, have not responded to this recommendation.
The family have hired the law firm Davinder Singh Chambers to represent them.
The group has suffered accumulated derivatives trading losses of US$808 million over the past 10 years but recorded realised gains of US$1.34 billion, leaving a potential overstatement of US$2.15 billion, PwC said.
To allegedly help conceal the losses, inter-bank transfers among Hin Leong's various accounts were made to give the false impression that accounts receivables were collected, when no payments were received, PwC said.
This not only inflated the value of the balances, but also gave it an appearance of legitimacy by ensuring that the accounts were kept current, it said.
Hin Leong also allegedly fabricated documents on a massive scale to mislead banks into extending financing. The documents also acted as supporting documents for alleged fictitious gains or profits.
"The scale and regularity of the fabrication suggests that the practice was routine and pervasive," according to the report.
The US$3.5 billion liability included financing that had been granted under 273 letters of credit facilities from 23 lenders that were supposedly used to fund the purchase of cargo, PwC said.
Some of the schemes involved forged documents, non-existent inventory or the sale of the same inventory to multiple parties, it said.
"This has led to competing legal claims being asserted by the implicated parties," it added.
The inventory stored at Universal Terminal, which is 41 per cent owned by the Lim family, and the inventory on larger vessels chartered from Ocean Tankers and Xihe will likely be subject to multiple claims by creditors, PwC said.
PROSPECTS OF CREDITORS' RECOVERY
The manager's findings also underscore the challenges Hin Leong's creditors face in recovering their loans.
Corporate governance advocate Mak Yuen Teen said: "I don't see any prospect for Hin Leong to be restructured on its own, given the massive hole it is in.
"Some banks may come out better than others, depending on their title to the assets. But a US$3 billion hole suggests huge haircuts."
A source close to the matter told The Sunday Times: "Some creditors' claims may be weakened but some others may be strengthened. It depends on how good is their security or title to the cargo, given that so many documents were allegedly forged.
"If the same cargo has been used to secure five different loans, then how good is that security?
"It has to be a consolidated restructuring. Hin Leong has only US$257 million in assets to satisfy over US$3.5 billion of debt. But we haven't taken into account the value of the vessels owned by Ocean Tankers and Xihe, and we don't know how much of personal assets the Lim family will throw into the restructuring."
Potential lawsuits may also be brought by creditors and Hin Leong's managers to claw back dividends and funds lost as a result of the losses, the source added.
The scale of the losses and how they went undetected for so long boggles the mind, observers say.
Prof Mak said: "Some of the controls look really questionable and it's surprising the auditors didn't pick up."
Sources say documents such as invoices and letters of credit, which are used as a way of financing short-term trade, can be easily forged.
A bank issues the so-called letter on behalf of the buyer as a guarantee of payment to the seller. Once the goods have changed hands, the buyer repays the lender.
"Many banks are willing to take the credit risk because of the reputation and name of the sellers, which are usually big oil majors and trading companies. If you are a big player, (it's likely) you won't be questioned," a source said.
Mr Moses Lin, partner of Shook Lin & Bok, noted: "There is no institutional equivalent of a credit bureau for Singapore corporate borrowers.
"If there was a database where a bank can check how much outstanding debt a potential corporate borrower has with other banks, it could help banks better assess credit worthiness of that borrower, and Hin Leong's debts might not have ballooned to such an extent."
His law firm represents major creditor HSBC Holdings, which has the most exposure to Hin Leong at about US$600 million.
Prof Mak noted that Hin Leong's collapse should be a "huge wake-up call to regulators, banks, auditors and counterparties".
"I think the oil trading and shipping industry will face huge reputational damage from this.
"We cannot sugar-coat this, or try to blame it all on the collapse of oil prices or Covid-19."
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