Hin Leong, the commodities company at the centre of a scandal that has rocked Singapore’s energy trading hub, needs to be merged with another of its billionaire owner’s businesses to survive, according to a report filed in the city-state’s high court.
The report from PwC, which was appointed in April by the court to run Hin Leong after the accounting scandal first erupted and the company filed for bankruptcy protection, said that the group had overstated profits from derivatives trading by an estimated $2bn or more over the past decade.
The company has been gripped by crisis since Lim Oon Kuin, one of Singapore’s most successful businessmen, admitted that he had directed the company’s finance department not to disclose $800m of losses sustained in futures trading.
Founded in 1963, Hin Leong has grown into one of the biggest suppliers of marine fuel in Asia. Mr Lim also set up Ocean Tankers, which charters or operates more than 150 vessels, and also expanded into fuel storage.
The revelations in the PwC report, a copy of which was seen by the Financial Times, underline the challenge Hin Leong’s banks, which include HSBC and ABN Amro, will face in recovering any of their loans.
“With assets of $257m and massive liabilities of $3.5bn, restructuring of the company [Hin Leong] on its own is unlikely to result in a recovery that is better than liquidation,” the PwC report states. “Therefore it is unlikely for the company to be restructured or rehabilitated on a standalone basis.”
Over the past 10 years, the group suffered losses tied to derivatives of $808m but recorded realised gains of $1.34bn, leaving a potential overstatement of $2.15bn, the report said.
It added that Hin Leong’s profits for last year were overstated by almost $1.2bn, including $436m of gains on “fictitious” derivatives trading, $150m of “fictitious sales” and overstating inventory by $800m.
The scale of the problems at Hin Leong means that it should be merged with other companies either fully or partially owned by the Lim family, including its shipping arm Ocean Tankers, and Universal Terminals, a petroleum storage joint venture, the report recommends.
“The company, OT, Xihe Group and UT should be put together for the restructuring,” it concludes “Lim Family’s commitment to inject their personal assets is required.”
Mr Lim’s April disclosures sent shockwaves through the commodity trading industry and raised fears that banks will limit their exposure to the sector, which relies on cheap finance to move raw materials around the world.
Singapore has suffered a number of blows in the commodity trading sector in recent years, including the recent collapse ZenRock Commodities Trading, which is also under judicial management.
A spokesperson for Rajah & Tann, the legal advisers to Hin Leong’s interim judicial managers, declined to comment. Lawyers for the Lim family did not respond to a request for comment. PwC did not immediately respond to requests for comment.