TRADE FINANCE TALKS
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How the collapse of Hin Leong Trading should accelerate the adoption of technology for trade finance Hin Leong Trading’s, founded by Singaporean oil tycoon Lim Oon Kuin, collapse sends shockwaves through industry leading businesses to significantly embrace digital transformation. AN INSIGHT INTO THE COLLAPSE OF HIN LEONG TRADING IN SINGAPORE JOHN KHAW
Trade Professional TFG’s International Trade Professionals Programme Cofounder Lucidity
In mid-April, while Singapore and the rest of the world had their hands full amidst the COVID-19 pandemic, bombshell revelations about Hin Leong Trading’s woes shocked Singapore and its markets worldwide. Its reverberations were felt across the globe, with the many pointing to the oil price volatility as one of the major causes of its collapse. With the world focused on the fate of American oil producers following the WTI negative prices for the first time in history, little does one expect that the 2020 Russia–Saudi oil price war would claim its first major scalp on the other side of the world, albeit unexpectedly, in the form of one of Asia’s largest fuel traders, Hin Leong Trading. As the dust settles following its phone call with its bankers
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about a debt moratorium, it revealed the scale of the scandal to the disbelief of many trade bankers in the industry. Hin Leong racked up US$3.6b of debt owed collectively to 23 banks, with more than US$598m owed to its largest lender HSBC. With Hin Leong’s founder Lim Oon Kuin further admitting that the oil pledged for collaterals worth $800m had been sold to raise cash instead of repaying debt liabilities, their bankers are staring at the possibility of recovering just 18 cents for every dollar lent in the best-case scenario. Hin Leong Trading has since been successfully placed under interim judicial management of PwC as it seeks to restructure its mountain of debt.
THE MECHANICS OF LETTERS OF CREDIT As a commodities trading company, where profits are made of razor-thin margins, access to letters of credit is one of the most important financial tools a trading company could have. Letters of credit (more commonly known as LCs) are essentially a payment undertaking by the buyers’ bank to the supplier, in exchange for compliant document presentation against the terms and conditions of the LCs. Letters of credit are commonly issued according to
tradefinanceglobal.com
