After pointing out the perplexing lack of high-profile blow-ups in the current commodity crush (as a reminder back in 2016 when oil dropped less than it has now, the Glencores and Trafiguras of the world were this close to collapse), we reported less than a month ago that one of Singapore's biggest and most iconic - and extremely secretive - oil traders, Hin Leong Trading, whose website reports revenue surpassed $14 billion all the way back in 2012, filed for bankruptcy protection after, according to a Bloomberg report, the son of the "legendary" founder of Hin Leong said the Singapore oil trader hid about $800 million in losses racked up in futures trading.
At the time we warned that potentially means huge losses for the banks which provided the merchant with billions in loans as the collateral they thought they have as a guarantee isn’t there. Altogether, Hin Leong is said to owe almost $4 billion to more than 20 banks including HSBC (which said it booked a substantial loan loss provisions from an exposure to oil traders), who will now scramble to figure out just how massive their loan losses are.
And now, as Bloomberg reports, we see the first real victim as Societe Generale is halting fresh funding to oil trading firms in the Asia Pacific region and reviewing its activities globally after taking a large hit because of the collapse of the Singapore giant.
According to people with knowledge of the matter, Bloomberg notes that the Singaporean company filed for creditor protection while owing the French bank about $240 million leading it to reconsider its future business in commodities financing both in the APAC region and more broadly.
“Societe Generale doesn’t comment on market rumors but the bank reminds that Natural Resources financing is one of its core expertise,” the lender said in a statement.
“Societe Generale will remain committed to the Trade Commodity Finance sector, including in Asia.”
As we detailed previously, one unexpected consequence of the company's sudden bankruptcy, is that with a record 160MM barrels of oil loaded up on tankers to ease the global commodity glut, Singapore may suddenly lose its place as the world's tanker "parking lot." While traditionally Singapore has had massive spare oil storage capacity which explains photos such as shits one...
... it is Hin Leong's Universal Terminal that has storage capacity of 2.33 million cubic meters and is the largest independent petroleum storage terminal in Singapore and one of the biggest independent storage facilities worldwide. But now that the company is bankrupt, the ability of tankers to store their holdings in the terminal is suddenly in limbo, which means that storing oil on sea may suddenly become far more complicated.
Last month, before we know the extent of the company's financial debacle - and fraud - we concludes that "it is unclear what will happen to the Singapore commodity trading giant if it is unable to find banks that will backstop its operations." Well, we now know - game over - which makes the second part of our forecast especially applicable: "should the firm become insolvent, the downstream cascade for companies in the Pacific Rim could be devastating."
And it seems we are correct as we are sure SocGen will not be the last to reconsider its credit-financing of these over-levered Asian trading entities.