SINGAPORE - The letters started to arrive in early April. One after the other, the titans of global finance, from JPMorgan Chase & Co to HSBC Holdings, demanded the immediate and urgent repayment of hundreds of millions of dollars in loans.
O.K. Lim, known formally as Lim Oon Kuin, has fallen on his sword, revealing he hid more than US$800 million in losses speculating in oil futures over the years. Worse still for the banks, Mr Lim said he had secretly sold some of the million of barrels of oil inventories the company had pledged as collateral for its loans. The gap between the company's assets and its liabilities stands at US$3.34 billion .
The rise and fall of Hin Leong is a tale of humble beginnings, business acumen, and luck. But above all, it shows that Mr Lim, a keen poker player according to those who know him, was willing to bet, and bet big, in the loosely regulated and opaque world of oil trading. This month, he lost his biggest hand.
HUGE CONSEQUENCES The demise of Hin Leong has far-reaching repercussions for a market that literally fuels global trade. Singapore is the world's biggest hub for shipping fuel. The trading house's bunkering unit was the third-largest supplier in the city last year, according to the Maritime and Port Authority.
This time, the trigger was a global calamity that nobody saw coming. World oil prices fell by two-thirds between early January and the end of March, crushed by plummeting demand due to the coronavirus outbreak and a price war between Saudi Arabia and Russia. They have since collapsed below zero in the U.S. for the first time ever.
Brent crude, the global benchmark, plunged from more than US$70 a barrel in early January to just US$21.65 a barrel in late March. As prices crashed, Hin Leong's banks asked for more and more money to cover the bullish bets that it had placed. What's more, the value of the company's inventories was rapidly shrinking as prices dropped, meaning Hin Leong needed to mortgage more barrels to maintain its credit lines.
The banks held a virtual meeting with the oil trader and its advisers on April 14, the people said. During the call, the company told them that its liabilities stood at US$4.05 billion as of April 9, while its assets were only US$714 million. The massive US$3.34 billion difference suggests banks may recover only 18 cents on the dollar, a staggering loss in the business of financing commodity trade.
It is a just ending for a smuggler.
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Source: BusinessTimes - 🏆 15. / 51 Read more »