Hin Leong Trading (Pte.) Ltd.
ANALYSIS: Refi of Universal Terminal’s S$1.5B Syndicated Loan Potentially Complicated by Hin Leong JM $3.5B Recovery Action Against Lim Family; Lim Control at UT Likely Gating Issue to Refi, Equity Stake Sale; Appt. of JMs at UT Upon Non-Payment Scenario May Alleviate
Wed 09/09/2020 02:22 AM
The move by PricewaterhouseCoopers - judicial managers (JM) of Hin Leong Trading (Pte.) Ltd (HLT) - to directly pursue members of the Lim family for repayment of $3.5 billion stemming from creditor losses is likely to have ramifications on other aspects of the Lim family businesses, including Universal Terminal (S) Pte Ltd (UT) and its potential refinancing of its S$1.5 billion ($1.09 billion) syndicated loan due December.
For context, the corporate structure of UT and HLT, and its various sister companies and stakes in other key assets is below:
Interrelated is the impact that HLT JM’s action will have on any sale of the Lim family’s 41% equity stake in UT held through Universal Group Holdings Pte Ltd (UGH) which complicates the credit further -- given that any refinancing of the syndicated loan may require either a significant divestment of the Lim family’s stake in UT and/or removal of Lim family control and influence via their directorships at UT.
According to Reorg’s analysis, UT and its subsidiary - UT Singapore Services Pte Ltd (UTSS) where the SG$1.5 billion loan is booked with a parent guarantee provided by UT - could see a not insignificant risk of being put under the control of JMs if the refinancing of the loan does not take place and the guarantee obligations are defaulted on -- especially given the context of the actions against the Lim family at the HLT level.
Any appointment of JMs at the UT level, could in turn complicate any recovery creditors at the HLT level had hoped to gain from the Lim family’s stake in UT -- which is further complicated by cross-creditor constituencies throughout the corporate structure of the Lim family businesses (see below).
Trustworthy Financials? Operational Issues?
As reported, UT was in talks with its lenders to refinance the outstanding S$1.5 billion syndicated loan but such a prospect could become increasingly difficult. This is because UT’s 2019 financials do not appear to be in final form and lenders could look with suspicion at any 2020 management accounts given the fraud-related claims against members of the Lim family and potential operational issues as flagged by Argus.
Deloitte, assuming that it was reappointed as UT’s auditors in 2019, could also be hesitant to sign off on UT’s 2019 financial statements if they have not already done so given the imbroglio at HLT and their role as auditor there.
As reported, some of the cargo stored within UT’s premises could be subject to competing claims and it remains to be seen the magnitude of contingent liabilities crystallising at UT, if any.
In addition, with regard to related party transactions carried out between UT and its sister companies, outstanding receivables owing to UT by its sister companies could be severely impaired especially as HLT is insolvent.
Change of Control, Refinancing Possibilities
The Lim family - in particular, OK Lim and Lim Chee Meng - is likely to remain in control of UT through its board of directors as previously covered by Reorg.
As reported, Xihe Holdings - another sister company of HLT that owns a significant portion of the group’s tanker fleet - has been placed under interim JM on the back of OCBC’s application.
Mandated lead arrangers and other lenders in UT’s S$1.5 billion loan such as Bank of China, DBS, HSBC and Standard Chartered also have exposure in HLT and some have also lent to the Xihe group of companies - given the circumstances outlined above, it remains to be seen if the credit committees of the lending banks with overlapping credit exposures will be willing and able to refinance UT’s loan as it comes due in December.
Therefore, the probability of a successful refinancing is likely to be dependent on a simultaneous change of control against the Lim family.
A prospective buyer of the Lim family’s 41% stake in UT will be cognisant of the S$1.5 billion maturity wall in December at UTSS, as well as the accompanying practical implication of a narrowing due diligence window as more complexities crop up - such as the operational issues mentioned earlier.
A prospective buyer could be anticipating a more attractive set of transaction dynamics if the loan at UTSS does not get refinanced successfully by the end of the year and the borrower and UT get placed under JM as well, just like its sister companies.
Such a development could engender greater commercial transparency into UT and UTSS as JMs would take control of the companies, providing a prospective buyer with a greater level of transparency to conduct the appropriate level of due diligence in order to appreciate fully the commercial impact of related party dealings, operational irregularities and contingent liabilities, if any.
Other M&A Considerations
Another factor that could complicate the Lim family’s stake sale in UT is whether their holding through UGH is encumbered. Given the financing chronology at UT, this is a possibility and could result in a relatively wide bid-offer situation, especially as the Lim family is being sued for $3.5 billion.
The other significant shareholders of UT - PetroChina and MAIF Singapore Pte Ltd, the latter being a Macquire-affiliated fund - with a combined stake of 59% could be keen on another operator taking over control of the company or alternatively exiting their position entirely.
Aside from UT, PetroChina and Macquarie have interests in other offshore storage terminals within Singapore territorial waters and it remains to be seen if they are willing and able to increase their stake in UT to take over operating control.
Otherwise - in the event of a stake sale and change in control - assuming that there is a shareholders’ agreement at UT in place, Petrochina and MAIF could have rights of first refusal to the Lim family’s stake and there could also be some kind of drag-and-tag along clause that could complicate a prospective deal. Given that the Lim family’s stake in UT is only 41%, a prospective buyer looking to solidify control at UT would likely want to purchase a majority stake or even consider taking over the equity base entirely -- given the right valuation.
Additionally, considering that UT is the largest independent petroleum storage terminal in Singapore and one of the biggest commercial storage facilities worldwide, there could be other strategic considerations that would limit the set of prospective bidders of the Lim family’s stake likely to end up taking over control of the storage terminal.
Legal Considerations - Lim Family Control
Given that the continued Lim family control at UT - via both their directorships and 41% equity stake - and the complications (detailed above) created by HLT’s JM move to seek repayment of approximately $3.5 billion of the company’s debts from the Lim family and the likely negative impact this could have on the potential refinancing options for subsidiary UTSS’ S$1.5 billion loan, non-Lim stakeholders may be beginning to consider their options to remove the Lims.
The Singapore Companies Act permits the removal of directors by ordinary shareholder resolution. However, the memorandum and articles of association for UT may contain further provisions which may vary the removal requirements, such as the need to obtain a special resolution - which would have a higher shareholder approval threshold - and/or include additional requirements.
Considering the Lim family holds a 41% shareholding in UT via their holdings in UGH, this would enable them to block a special resolution - which would have a 75% approval threshold - seeking their removal.
Another way for the Lim family’s control of the company to cease could depend on creditors under the UTSS’ syndicated loan, who may become the focal stakeholder in any action to remove the Lims from their controlling position at UT.
Given the complications detailed above, which could hinder any refinancing of the loan, assuming a non-payment scenario in December, the lenders under the loan may be able to apply to the court for the appointment of judicial managers at the UTSS and UT level.
Given the syndicated loan at UTSS benefits from a guarantee provided by UT, should UT default on its guarantee obligations when called, a judicial management application at the UT level may also be possible. This would have the effect of judicial managers replacing the directors at UT -- in effect removing the Lim family influence from the structure.
Considering the interconnected nature of the Lim family’s businesses - HLT, OTPL, Xihe and UT - there may be crossover issues in connection with the Lim family’s fraudulent actions which have been admitted, alleged or uncovered at some of the other entities.
Any JMs appointed at the UT level would be able to investigate the extent of any such activities and take forward potential claims connected with similar breaches of director duties. This might be a route into the value housed at the UGH level, represented by the Lim equity holdings, to be accessed. Alternatively, should these types of claims not be available any appointed JMs could look to restructure the business -- which might involve a sale of the business, including the Lim’s 41% stake.
Prior to the recent HLT JM actions, as part of any proposal to restructure HLT’s debts, OK Lim has suggested in his affidavit that the Lim family would contemplate injecting some of their assets into HLT, such as the shares they hold in UT and the Xihe Group of companies.
Should JMs be appointed at the UT level this may result in creditor recovery from the Lim stake at UT being earmarked for creditors at the UTSS level and others in the UT structure, as opposed to being a source of value to creditors at the HLT level. If this is the case, creditor’s at HLT may need to look for other pockets of value for recovery such as from the Xihe group of companies -- unless some sort of holistic JM led restructuring could be put together for the entire Lim family empire.
As referenced above, some creditors have exposure across at the HLT, Xihe and UT level. This likely adds an additional layer of complexity to creditor recovery strategies.
If the scenario permits, the appointment of JMs may be an attractive route for creditors, especially given the recent statutory changes under the commencement of Singapore’s Insolvency, Restructuring and Dissolution Act -- which provides further revisions to Singapore’s restructuring regime, and could make additional funding streams, via third parties, more readily available to JMs pursuing certain claims against directors, potentially opening up further creditor recovery streams should the fact pattern support.
As previously detailed in Reorg’s Singapore restructuring primer, in order to access the judicial management regime a creditor would make an application on the basis that (i) the company is or will be unable to pay its debts, (ii) there is a reasonable probability of rehabilitating the company or preserving all or part of the business as a going concern or that otherwise the interests of creditors would be better served than by resorting to a winding up of the company.
For completeness, in a non-payment scenario of the syndicated loan and as part of a more defensive move by the Lim family, UT and UTSS could seek moratorium protection on the basis that they would propose a scheme of arrangement in order to restructure the company’s debt. However, given the fact pattern at HLT there would likely be creditor opposition to such a move and a counter JM application made.
UT’s capital structure is as follows:
-- Jeff Burton, Junguang Tan
For context, the corporate structure of UT and HLT, and its various sister companies and stakes in other key assets is below:
Click HERE to Enlarge
Interrelated is the impact that HLT JM’s action will have on any sale of the Lim family’s 41% equity stake in UT held through Universal Group Holdings Pte Ltd (UGH) which complicates the credit further -- given that any refinancing of the syndicated loan may require either a significant divestment of the Lim family’s stake in UT and/or removal of Lim family control and influence via their directorships at UT.
According to Reorg’s analysis, UT and its subsidiary - UT Singapore Services Pte Ltd (UTSS) where the SG$1.5 billion loan is booked with a parent guarantee provided by UT - could see a not insignificant risk of being put under the control of JMs if the refinancing of the loan does not take place and the guarantee obligations are defaulted on -- especially given the context of the actions against the Lim family at the HLT level.
Any appointment of JMs at the UT level, could in turn complicate any recovery creditors at the HLT level had hoped to gain from the Lim family’s stake in UT -- which is further complicated by cross-creditor constituencies throughout the corporate structure of the Lim family businesses (see below).
Trustworthy Financials? Operational Issues?
As reported, UT was in talks with its lenders to refinance the outstanding S$1.5 billion syndicated loan but such a prospect could become increasingly difficult. This is because UT’s 2019 financials do not appear to be in final form and lenders could look with suspicion at any 2020 management accounts given the fraud-related claims against members of the Lim family and potential operational issues as flagged by Argus.
Deloitte, assuming that it was reappointed as UT’s auditors in 2019, could also be hesitant to sign off on UT’s 2019 financial statements if they have not already done so given the imbroglio at HLT and their role as auditor there.
As reported, some of the cargo stored within UT’s premises could be subject to competing claims and it remains to be seen the magnitude of contingent liabilities crystallising at UT, if any.
In addition, with regard to related party transactions carried out between UT and its sister companies, outstanding receivables owing to UT by its sister companies could be severely impaired especially as HLT is insolvent.
Change of Control, Refinancing Possibilities
The Lim family - in particular, OK Lim and Lim Chee Meng - is likely to remain in control of UT through its board of directors as previously covered by Reorg.
As reported, Xihe Holdings - another sister company of HLT that owns a significant portion of the group’s tanker fleet - has been placed under interim JM on the back of OCBC’s application.
Mandated lead arrangers and other lenders in UT’s S$1.5 billion loan such as Bank of China, DBS, HSBC and Standard Chartered also have exposure in HLT and some have also lent to the Xihe group of companies - given the circumstances outlined above, it remains to be seen if the credit committees of the lending banks with overlapping credit exposures will be willing and able to refinance UT’s loan as it comes due in December.
Therefore, the probability of a successful refinancing is likely to be dependent on a simultaneous change of control against the Lim family.
A prospective buyer of the Lim family’s 41% stake in UT will be cognisant of the S$1.5 billion maturity wall in December at UTSS, as well as the accompanying practical implication of a narrowing due diligence window as more complexities crop up - such as the operational issues mentioned earlier.
A prospective buyer could be anticipating a more attractive set of transaction dynamics if the loan at UTSS does not get refinanced successfully by the end of the year and the borrower and UT get placed under JM as well, just like its sister companies.
Such a development could engender greater commercial transparency into UT and UTSS as JMs would take control of the companies, providing a prospective buyer with a greater level of transparency to conduct the appropriate level of due diligence in order to appreciate fully the commercial impact of related party dealings, operational irregularities and contingent liabilities, if any.
Other M&A Considerations
Another factor that could complicate the Lim family’s stake sale in UT is whether their holding through UGH is encumbered. Given the financing chronology at UT, this is a possibility and could result in a relatively wide bid-offer situation, especially as the Lim family is being sued for $3.5 billion.
The other significant shareholders of UT - PetroChina and MAIF Singapore Pte Ltd, the latter being a Macquire-affiliated fund - with a combined stake of 59% could be keen on another operator taking over control of the company or alternatively exiting their position entirely.
Aside from UT, PetroChina and Macquarie have interests in other offshore storage terminals within Singapore territorial waters and it remains to be seen if they are willing and able to increase their stake in UT to take over operating control.
Otherwise - in the event of a stake sale and change in control - assuming that there is a shareholders’ agreement at UT in place, Petrochina and MAIF could have rights of first refusal to the Lim family’s stake and there could also be some kind of drag-and-tag along clause that could complicate a prospective deal. Given that the Lim family’s stake in UT is only 41%, a prospective buyer looking to solidify control at UT would likely want to purchase a majority stake or even consider taking over the equity base entirely -- given the right valuation.
Additionally, considering that UT is the largest independent petroleum storage terminal in Singapore and one of the biggest commercial storage facilities worldwide, there could be other strategic considerations that would limit the set of prospective bidders of the Lim family’s stake likely to end up taking over control of the storage terminal.
Legal Considerations - Lim Family Control
Given that the continued Lim family control at UT - via both their directorships and 41% equity stake - and the complications (detailed above) created by HLT’s JM move to seek repayment of approximately $3.5 billion of the company’s debts from the Lim family and the likely negative impact this could have on the potential refinancing options for subsidiary UTSS’ S$1.5 billion loan, non-Lim stakeholders may be beginning to consider their options to remove the Lims.
The Singapore Companies Act permits the removal of directors by ordinary shareholder resolution. However, the memorandum and articles of association for UT may contain further provisions which may vary the removal requirements, such as the need to obtain a special resolution - which would have a higher shareholder approval threshold - and/or include additional requirements.
Considering the Lim family holds a 41% shareholding in UT via their holdings in UGH, this would enable them to block a special resolution - which would have a 75% approval threshold - seeking their removal.
Another way for the Lim family’s control of the company to cease could depend on creditors under the UTSS’ syndicated loan, who may become the focal stakeholder in any action to remove the Lims from their controlling position at UT.
Given the complications detailed above, which could hinder any refinancing of the loan, assuming a non-payment scenario in December, the lenders under the loan may be able to apply to the court for the appointment of judicial managers at the UTSS and UT level.
Given the syndicated loan at UTSS benefits from a guarantee provided by UT, should UT default on its guarantee obligations when called, a judicial management application at the UT level may also be possible. This would have the effect of judicial managers replacing the directors at UT -- in effect removing the Lim family influence from the structure.
Considering the interconnected nature of the Lim family’s businesses - HLT, OTPL, Xihe and UT - there may be crossover issues in connection with the Lim family’s fraudulent actions which have been admitted, alleged or uncovered at some of the other entities.
Any JMs appointed at the UT level would be able to investigate the extent of any such activities and take forward potential claims connected with similar breaches of director duties. This might be a route into the value housed at the UGH level, represented by the Lim equity holdings, to be accessed. Alternatively, should these types of claims not be available any appointed JMs could look to restructure the business -- which might involve a sale of the business, including the Lim’s 41% stake.
Prior to the recent HLT JM actions, as part of any proposal to restructure HLT’s debts, OK Lim has suggested in his affidavit that the Lim family would contemplate injecting some of their assets into HLT, such as the shares they hold in UT and the Xihe Group of companies.
Should JMs be appointed at the UT level this may result in creditor recovery from the Lim stake at UT being earmarked for creditors at the UTSS level and others in the UT structure, as opposed to being a source of value to creditors at the HLT level. If this is the case, creditor’s at HLT may need to look for other pockets of value for recovery such as from the Xihe group of companies -- unless some sort of holistic JM led restructuring could be put together for the entire Lim family empire.
As referenced above, some creditors have exposure across at the HLT, Xihe and UT level. This likely adds an additional layer of complexity to creditor recovery strategies.
If the scenario permits, the appointment of JMs may be an attractive route for creditors, especially given the recent statutory changes under the commencement of Singapore’s Insolvency, Restructuring and Dissolution Act -- which provides further revisions to Singapore’s restructuring regime, and could make additional funding streams, via third parties, more readily available to JMs pursuing certain claims against directors, potentially opening up further creditor recovery streams should the fact pattern support.
As previously detailed in Reorg’s Singapore restructuring primer, in order to access the judicial management regime a creditor would make an application on the basis that (i) the company is or will be unable to pay its debts, (ii) there is a reasonable probability of rehabilitating the company or preserving all or part of the business as a going concern or that otherwise the interests of creditors would be better served than by resorting to a winding up of the company.
For completeness, in a non-payment scenario of the syndicated loan and as part of a more defensive move by the Lim family, UT and UTSS could seek moratorium protection on the basis that they would propose a scheme of arrangement in order to restructure the company’s debt. However, given the fact pattern at HLT there would likely be creditor opposition to such a move and a counter JM application made.
UT’s capital structure is as follows:
Click HERE to Enlarge
-- Jeff Burton, Junguang Tan
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