Singapore Banking Note – Impact of a Hin Leong Trading default April 22, 2020 660

  • Hin Leong Trading (Pte.) Ltd. (HLT) filed for bankruptcy on 17 April after it was discovered the company failed to report US$800mn worth of losses arising from derivatives trading.
  • HLT has a total of more than US$3.6bn in secured debt owed to 23 different lenders with only US$700mn in assets.
  • Local lenders DBS, OCBC and UOB each have exposure of US$290mn, US$240mn and US$140mn to HLT respectively.
  • Earnings of local banks will be impacted by up to 7% as a result of additional provisioning.

 

Background

On 9th of April, there were news that Hin Leong Trading (HLT) was refused borrowing from two lenders, as rumours of the company facing financial difficulties began to spread.

Over the following week, it was reported that HLT owed upwards of US$3bn to 23 separate lenders while assets stood at only US$700mn. The company had also failed to report US$800mn worth of losses from derivatives trading over the years.

It was later revealed that HLT had sold a substantial part of the company’s inventories, despite them being used as collateral for bank loans.

Currently, the company is reported to only own US$141mn worth of oil products inventory, with only US$50mn in cash.

HLT eventually filed for bankruptcy on 20 April, and is seeking a 6-month moratorium as the company undergoes debt restructuring procedures.

 

Impact on local lenders

All three local lenders were among the 23 lenders disclosed to have exposure to HLT. DBS, OCBC and UOB each have respective exposure of US$290mn, US$240mn and US$140mn to HLT in secured lending which is likely to be impaired. We expect the allowances to be booked in either 2Q20 or 3Q20, which will have impact on the local lenders’ earnings of between 4 – 7%.

The extent of the impact on the banks’ earning will be contingent on the allowances already set aside in the aftermath of the 2016 – 2017 oil price meltdown. Bank exposure to the oil and gas industry is estimated to be around 2% of the loan book.

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weehongw
weehongw

Bank exposure to oil and gas is 2% of the loan book but impact 4-7% of earning ? Higher interest income from oil and gas? Could you pls elaborate further?

Luke
Luke

You also mentioned total loan book is 2% on oil and gas. what are the other break down of loan book? this could be another follow up question.

Luke
Luke

i was wondering the last criss that affected our singapore banks on NPL. I think it was probably oil also ? so thta we have a reference to compare to.

About the author

Profile photo of Tay Wee Kuang

Tay Wee Kuang
Research Analyst
Phillip Securities Research

Wee Kuang currently covers the Banking and Finance as well as the Healthcare sector. Wee Kuang has had 2 years of experience as a Trading Representative (TR) before his current stint as an Analyst. As a TR, Wee Kuang developed a keen interest in investor education and hopes to be able to provide better insights for investors in his current role.

Wee Kuang graduated with a Bachelor of Business Management (Cum Laude) with major in Finance and Operations Management in 2017.

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