Thu 04/23/2020 23:36 PM
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UPDATE 4: 11:36 p.m. ET 4/23/2020:

Reorg has updated the corporate ownership structure of Hin Leong Trading (Private) Ltd and its sister companies to show that the Lim family’s Universal Terminals 41% stake is held through Universal Group Holdings. The chart has also been expanded with ownership breakdown of MAIF Singapore Pte Ltd based on disclosures in its FY2018 financial statements.

 
Click HERE to Enlarge

See the Excel tearsheet for Hin Leong HERE.

See the Legal Analysis for Hin Leong HERE.

See the analysis for Universal Terminals HERE.
 

UPDATE 3: TEARSHEET UPDATE: Universal Terminals Information Now Included in Hin Leong Tear Sheet

UPDATE 3: 1:35 a.m. ET 4/23/2020

Relevant Documents:
Excel Tearsheet (HLT/ OTPL/ UT + Vessel List + Secured Creditors/ Security)

Reorg has updated the Excel tearsheet for Hin Leong Trading (Pte.) Ltd. to include details on Universal Terminal (s) PTE. Ltd.’s (UT) capital structure, valuation and peers in the storage terminal space. Find it on Reorg HERE.
 


UPDATE 2: Hin Leong Founder OK Lim States in Affidavit that $800M Futures Losses Were Reflected As “Accounts Receivables”

UPDATE 2: 3:52 a.m. ET 4/21/2020: As previously reported, HLT has incurred approximately $800 million in futures losses which have not been reflected in its financial statements. According to an affidavit filed by Lim Oon Kuin (OK Lim) on April 17, HLT satisfied the payment of margin calls in respect of the futures losses through the company’s account receivables line item and this remained recorded as such after the losses were realised. This means that the significant reduction in receivables from Oct. 31, 2019 to Apr. 9, 2020 may not be largely due to cash collections but subsequently written down or impaired due to their potentially fictitious nature.

Reorg’s attempt to reach HLT, OK Lim and Evan Lim the past few days have not been successful.
 


UPDATE 1: Reorg has Updated Hin Leong Trading's Excel tearsheet to Include the Breakdown of Secured Creditors and the Description of their Respective Security

UPDATE 1: 12:57 a.m. ET 4/21/2020: Reorg has updated Hin Leong Trading's Excel tearsheet to include the breakdown of secured creditors and the description of their respective security.

Original Story 7:13 a.m. UTC on April 20, 2020

TEARSHEET: Hin Leong Likely Insolvent as Working Capital Depletes; Bank Debt Jumps 126% to $3.85B while AP decreases 92% to $200M; Lim’s Family Stake in Xihe Group, Universal Terminal Could be Substantial

Relevant Documents
Excel Tearsheet (HLT/ OTPL + Vessel List + Secured Creditors/ Security)

Singaporean commodities trader Hin Leong Trading (Pte) Ltd.’s (HLT) is likely insolvent according to balance sheet figures presented at a bank lenders’ meeting dated April 14. It also appears insolvent in previous years once the $800 million in futures losses have been taken into account, as previously reported by Reorg. Since the company’s last audited financials in 4Q19, there have been considerable reductions in its cash, trade receivables and inventories balances - these working capital items constitute the bulk of HLT’s 2019 audited balance sheet. Yet, as of April 9, the company’s bank debts increased by $2.15 billion to $3.85 billion while its trade payables decreased by more than $2.14 billion to around $200 million. Notwithstanding HLT’s troubles, the Lim family’s stakes in Xihe Group and Universal Terminals are substantial, if the respective equity stakes are unencumbered.

The company’s capital structure and its significant working capital items are as follows:
 
Click HERE to Enlarge

Depleting Working Capital Balances, Missing Cash Flows?

From the above table, it remains to be seen as to how HLT has used the incoming cash flows contributed by the liquidation of its inventories, reduction of $2.26 billion in trade receivables - assuming most of this reduction is attributable to collections instead of impairments - and the $2.15 billion increase in bank debts to meet its various financial liabilities and operational requirements.

According to the April 17 affidavit, HLT has attributed the decrease in its inventories’ balance to volumetric reductions and mark-to-market pricing losses in various fuels and distillates:
 
See Excel Tearsheet HERE


Despite the liquidation of inventories, a substantial reduction in trade receivables and the considerable increase in bank debts, HLT’s cash balance is low at around $50 million as of April 9, 2020, according to Evan Lim Chee Meng’s affidavit filed with the Singapore High Court on April 17 (April 17 affidavit).

It is likely that a significant use of cash went towards the reduction of trade payables, which went from a balance of $2.34 billion as of Oct. 31, 2019 to around $200 million as of April 9, 2020 - a reduction of $2.14 billion. However, this use of cash does not fully account for all the potential sources of cash arising from HLT’s liquidation of inventories, collection of trade receivables and a significant increase in bank debts.

According to an affidavit filed on April 17 by HLT’s founder Lim Oon Kuin (OK Lim), HLT was subject to margin calls by numerous banks in March and April 2020 due to the sudden drop in oil price, which led to a “severe depletion” of HLT’s cash reserves. At or about the same time, the trade financing loans from the banks to HLT’s purchase of cargo became due and HLT “simply did not have the funds to pay these loans”.

Insufficient Hedging, Poor Financial Performance

As previously covered by Reorg, HLT stated that it was not sufficiently hedged amidst the recent oil price volatility and this contributed to its financial difficulties. This issue is reflected in the company’s derivative balances when comparing 2019 balances against the previous year’s:
 
See Excel Tearsheet HERE

Hedging issues aside, HLT’s financial performance over the last two years has not been strong:
 
See Excel Tearsheet HERE

This would imply that debt restructurings of HLT and its sister company, Ocean Tankers (Pte.) Ltd (more later) could require the involvement of the other assets in which the controlling Lim Family has significant stakes in.

The corporate structure of HLT, its various sister companies and stakes in other key assets are as follows:
 
Click HERE to Enlarge

Ocean Tankers (OTPL)

According to the April 17 affidavit, OTPL’s balance sheet as of March 31, 2019 appears weak as its total equity stood at around $6 million despite receiving shareholder’s equity contribution of $109.4 million during the fiscal year. Assuming no further equity injections since, it is also arguably insolvent especially if the $2.67 billion of contingent liabilities associated with its bill of ladings are crystallised and it cannot obtain meaningful indemnification for such liabilities from HLT, as previously covered by Reorg.

As of March 31, 2019, OTPL only had a very small amount of finance lease outstanding and no interest-bearing borrowings, the same affidavit shows.

A summary of OTPL’s financial performance:
 
See Excel Tearsheet HERE

OTPL operates around 152 vessels and 145 of these vessels - from coastal barges to tankers - are owned through the Lim family’s Xihe Group of companies (see organizational chart above) as well as through 10 other shipping and maritime entities.

Xihe Group & Vessel Fleet

Based on information contained in the April 17 affidavit, the following summary shows vessels operated and chartered by OTPL which are owned by the Lim family through its Xihe Group of entities and various standalone shipping companies:
 
See Excel Tearsheet HERE

The insured value of vessels owned by the Lim family is around $2.27 billion. Simply going by vessel count and deadweight tonnage (DWT), most of the vessels are owned through Xihe Holdings.

Assuming the insured value of the vessels as a rough proxy for their respective market values and a loan-to-value ratio of 50% to 60% (based on leverage disclosures by certain listed tanker operators), the Lim family’s stake in Xihe group could be worth around $700 million to $900 million - assuming their ownership stakes in the Xihe companies are unencumbered and all the vessels owned by Xihe group are essentially chartered out to OTPL.

The full list of 152 vessels operated by OTPL, their respective ownership, vessel name, DWT, vintage and insured values can be found in Reorg’s Excel Tearsheet HERE.
 
Source: Refinitiv (April 20)

Further, the sharp contango in Brent crude could see stronger demand for oil tanker storage solutions and this could lead to higher near-term charter rates and consequently, higher ship values. Similarly, the same market dynamics could also be favourable for the Lim family’s stake in Universal Terminals and its onshore storage facilities.

Universal Terminal

Through Universal Group Holdings (Pte.) Ltd (UGH), the Lim family owns a 41% stake in Universal Terminal(s) (Pte.) Ltd. (UT). Macquarie Asia Infrastructure Fund (MAIF) has a 34% stake while PetroChina has a 25% stake, based on the April 17 affidavit.

According to UT’s and HLT’s websites, UT is the largest independent petroleum storage terminal in Singapore and one of the biggest commercial facilities worldwide. It occupies 56 hectares of land at the southern end of Jurong Island, Singapore and offers 2.33 million cubic metres of storage capacity and berthing facilities, including 15 jetties.

According to UT’s 2018 financial statements, it has S$1.58 billion ($1.1 billion) of secured bank loans outstanding as of Dec. 31, 2018. Around S$1.5 billion of the bank loans will mature in December 2020.

Based on a MAIF Singapore entity 2018 financial statements, MAIF’s fair value estimation of its 41% equity stake in UT is S$739.9 million as of Dec. 31, 2018. This would imply that the Lim’s family stake is worth around S$890 million then. Given the current oil oversupply and sharp Brent contango dynamics mentioned earlier, the Lim family’s stake in UT could be worth more in the current market environment.

-- Junguang Tan
 
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