You would probably read about Hin Leong Trading scandal whereby the company recently revealed US$800 million of undisclosed losses and the company is seeking US$3.85 billion in debt. It was mentioned that Hin Leong Trading owes US$3.85 billion to 20 lenders.
Thinking that it will not affect you? As the saying goes “One problem leads to another”, among the lenders are the local banks DBS (SGX:D05) , UOB (SGX:U11) and OCBC (SGX:O39). They have a combined exposure of at least US$600 million to Hin Leong Trading. OCBC Bank currently makes up 2.53% of my stock portfolio and I am looking at adding more during this COVID-19 crisis.
If you look into the financial statements of the 3 local banks, oil and gas bank loans are classified under “Transport, storage and communication” sector. DBS have the highest exposure. Below are the extracts from each bank’s financial statement where you can find from their respective website.
DBS FY19 Financial Statement
DBS have an exposure of 8.7% (S$31.6 billion) to the transport, storage and communication sector.
OCBC FY19 Financial Statement
OCBC have an exposure of 5.0% (S$13.3 billion) to the transport, storage and communication sector.
UOB FY19 Financial Statement
UOB have an exposure of 4.1% (S$11.0 billion) to the transport, storage and communication sector.
Taken from Hin Leong Trading company website, below are the services that Hin Leong Trading provides. They range from Petroleum Products, Marine Bunker Supply, Storage, Lubricant and Greases, Shipping and Trucking.
Impact To SembCorp Industries Ltd (SGX:U96)
Not only banks, SembCorp Industries Ltd was not spared. Sembcorp Cogen Pte. Ltd is a subsidiary of Sembcorp Industries Ltd. There was a gasoil supply and storage agreement between Sembcorp Cogen and Hin Leong Trading whereby Sembcorp Cogen purchased from Hin Leong Trading, and Hin Leong Trading stored and managed on behalf of Sembcorp Cogen, gasoil reserves to fulfil certain regulatory requirements under Sembcorp Cogen’s electricity generation licence.
Sembcorp Cogen had
- Terminated the Gasoil Supply and Storage Agreement on 22nd April 2020.
- Commenced legal proceedings in the High Court of the Republic of Singapore (the “Court”) to assert its ownership of the gasoil reserves which are stored in designated tanks at Hin Leong Trading’s affiliate, Universal Terminal (S) Pte Ltd (“Universal Terminal”).
- Obtained an order from the Court to, amongst other things, restrain Universal Terminal from moving, removing or disposing any of the gasoil reserves claimed by Sembcorp Cogen, and to ensure that such gasoil reserves are stored separately from any other gasoil on 24th April 2020.
I am not sure how deep the impact of Hin Leong Trading financial woes will impact the local banks and SembCorp. As of today, all 4 stocks are still trading in green. The stock market can really be irrational. Or perhaps the banks are already used to lending money to oil traders and not getting their money back?
Just my few cents worth, trade with caution.