HSBC’s attempt to remove the management of collapsed energy trader ZenRock Commodities Trading was sparked by concerns about alleged “dishonest practices” and “sham”, which the bank also reported to police in Singapore, court documents said. .
The UK-based lender filed with the Singapore High Court on Monday for an independent third party to head ZenRock and negotiate a debt restructuring agreement with its creditors. ZenRock’s debt to institutional lenders is approximately $ 214 million, of which almost $ 49 million is with HSBC.
In court documents supporting its claim, viewed by the Financial Times, HSBC alleged that ZenRock had issued duplicate commercial invoices with different payment instructions to raise funds from lenders for the same shipment of oil.
HSBC said these “dishonest practices” were exposed by the historic collapse in demand for oil caused by the coronavirus pandemic. This raised serious concerns about the liquidity of ZenRock and the ability of the private company to pay its debts.
“The company’s inability to raise new funding has exposed certain company business practices that at first glance appear to be false or, at the very least, extremely suspicious,” HSBC said in the brief.
ZenRock has not yet responded to HSBC’s allegations, although it should respond before the matter is heard in court.
In one of the transactions cited by HSBC, ZenRock allegedly used a letter of credit to finance the purchase of 920,000 barrels of crude oil from Socar, the national oil company of Azerbaijan, which, according to the court records, had the intention to sell on Total’s commercial branch in France.
As part of the agreement, Total’s payment was to be deposited with HSBC and used to repay the money drawn through the letter of credit. However, the money never arrived and HSBC later discovered that it had been transferred by Total to the Bank of China on instruction from ZenRock to repay another loan.
There is no suggestion of wrongdoing by Socar or Total in the file.
“The company’s conduct shows a blind disregard for its contractual obligations and a willingness to fabricate documents to support its funding attempts,” said the court file. “The management of the company simply cannot be trusted and must be replaced immediately by independent professionals.”
ZenRock did not respond to calls and emails seeking comment. HSBC, which according to its file expressed concerns about ZenRock to the Singapore police on April 28, declined to comment.
It is not known whether the Singapore police are investigating the allegations of HSBC, but have not taken any public action against ZenRock. The agency said it was “inappropriate” to comment on the ZenRock issue.
HSBC’s decision to resort to ZenRock’s debt management – a type of debt restructuring – by accounting firm KPMG illustrates how banks have increased their control of Singapore’s oil industry after a series of business explosions prominent in the city-state.
In addition to Hin Leong’s dramatic implosion, other cases include Agritrade International, Hontop Energy and Petro-Diamond.
Hin Leong is under administration after its founder Lim Oon Kuin revealed last month that $ 800 million in losses had not been reflected in its financial statements and that the company sought to protect itself from the creditors, who owe close of $ 4 billion. Among them, HSBC, which has an exposure of 600 million dollars.
ZenRock, founded in 2014, describes itself as “one of the fastest growing independent commodity trading companies in the world”.
The company said it traded 15 million tonnes of crude oil and related products in 2019.