HSBC alleges Singapore trader Zenrock conducted fraudulent oil trades: court filing

Singapore — Singapore-based oil trader Zenrock Commodities secured financing from multiple lenders by pledging the same cargo of crude oil several times over and duplicating invoices with different payment instructions, The Hongkong Shanghai Banking Corp said in an affidavit dated May 1, seen by S&P Global Platts Friday.

HSBC filed an application in Singapore's High Court to put the trader under judicial management, with a request for a third party overseeing the restructuring process as the bank no longer had confidence in the trader.

Zenrock Commodities did not respond to queries, and HSBC declined to comment on the dispute.

HSBC's affidavit stated that Zenrock's overall exposure to institutional lenders was about $165 million and around $50 million due to the bank had not been paid.

The fall in oil prices has lowered the value of collateral used to secure bank lending facilities and caused many banks to require oil traders to provide cash to cover their outstanding liabilities, the bank said in the affidavit.

"In many other cases, the banks have stopped extending fresh financing altogether. This has raised serious concerns as to [Zenrock's] liquidity and its ability to repay its debts," the bank said, adding that Zenrock's "inability to raise fresh financing has exposed certain trade practices by the company which appear on their face to be shams, or at the very least, extremely suspicious."

TWO KEY TRANSACTIONS IN QUESTION

Zenrock's outstanding debt to HSBC was $48.9 million under its lending facilities, mainly on account of two "highly suspicious" transactions of $34.8 million and $15.7 million respectively, according to the affidavit.

The first transaction was for a cargo of 920,000 barrels of Djeno crude oil on board the vessel "New Energy" FOB Djeno Terminal in the Congo for delivery between February 29 to March 1, 2020.

The original seller of the cargo was Socar Trading SA, the marketing arm of the State Oil Company of Azerbaijan Republic, and the final buyer of the cargo was Total Oil Trading SA, or TOTSA, the trading arm of France's oil major Total. Zenrock was the intermediary.

HSBC said it issued a letter of credit to Socar for the first leg of the transaction, but when it approached TOTSA for payment for the second leg, it was told that TOTSA had already made the payment to an account with Bank of China, which offset the amount against other outstanding dues from Zenrock.

Bank of China could not be reached immediately.

Additionally, HSBC said there were documents showing Zenrock sold the same parcel of cargo to another Singapore-based trader called Golden Base, and hence obtained financing at least twice, and possibly three times, on the same cargo.

Total and Socar did not immediately respond to queries. Golden Base could not be reached for comment.

The second transaction comprised Chinese independent trader Rongsheng Petrochemical (Singapore) as the original seller, and TOTSA as the eventual buyer, for 920,000 barrels of Djeno Crude FOB Djeno Terminal between 27 March 2020 and 28 March 2020, the affidavit said.

In this case too, HSBC had issued an LC to the original seller and was due to receive payment from TOTSA.

However, HSBC said in the filing that Zenrock entered into an offset agreement with TOTSA without its knowledge under which the payment was set-off against other dues to TOTSA.

Zenrock's lending facilities have come under scrutiny after the collapse of Singapore's largest homegrown trader Hin Leong last month where similar incidents of fuel volumes used as bank collateral was resold to generate funds.

On April 23, Zenrock and another trader Winson Group, had issued separate statements stating that their financial positions were not affected by the Hin Leong bankruptcy proceedings, and that they were not under statutory restructuring or insolvency protection.