What's the latest on Sembcorp shares post-Hin Leong Trading debt filing?

Sembcorp Industries’ share price rose nearly 3% after it terminated a long-standing gasoil supply and storage agreement with debt-ridden Hin Leong Trading.

Sembcorp Industries on Wednesday 22 April 2020 revealed that one of its subsidiaries Sembcorp Cogen has severed its ties with debt-ridden oil trading company Hin Leong Trading (HLT).

‘Given the recent news reports relating to HLT and the Moratorium, Sembcorp Cogen has taken steps to protect its interests over the gasoil reserves and had terminated the gasoil supply and storage agreement,’ Sembcorp Industries said in a press release.

The carrying book value of the gasoil reserves stored with Hin Leong Trading as at 31 December 2019 was S$94 million.

Following the announcement, Sembcorp Industries’ share price increased 2.7% to S$1.53 per share.

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Agreement with Hin Leong was part of regulatory requirements

In 2009, Sembcorp Cogen had entered a gasoil supply and storage agreement with Hin Leong Trading, in order to meet regulatory reserve requirements.

As part of its energy business, Sembcorp Cogen holds an electricity generation licence from the Energy Market Authority of Singapore (EMA), which requires it to have enough gasoil reserves to last at least 60 days of operations. Of that, at least 30 days of the operational reserves must be located at Sembcorp Cogen’s generating premises or on a site approved by the EMA.

According to Sembcorp Industries, Hin Leong Trading also provides storage and management services for the gasoil reserves on behalf of Sembcorp Cogen.

The group said that it has also notified EMA of the situation. It added that it will make an appropriate announcement in the event of any material developments.

How everything went wrong for Hin Leong Trading

One of Asia’s largest physical fuel traders, Hin Leong Trading last week filed for a six-month debt moratorium on an estimated S$3.85 billion debt load owed to 23 banks, citing oil’s massive price rout and the coronavirus pandemic as causes.

Hin Leong Trading founder and director Lim Oon Kuin had stated in a 17 April 2020 filing to the Singapore High Court that although a net profit of $78.2 million was reported for the business year ended in October 2019, ‘HLT has not been making profits in the last few years’.

In response to Hin Leong Trading’s debt filing, three government agencies - Enterprise Singapore (ESG), the Maritime and Port Authority of Singapore (MPA) and the Monetary Authority of Singapore (MAS) - have issued a joint statement saying that they are closely monitoring developments related to the company and the broader oil trading and bunkering sectors.

They noted that Singapore's oil trading sector ‘remains resilient’ and that there will be ‘no serious impact’ on Singapore’s bunkering industry. ESG and MPA will also continue to work with stakeholders to ensure that Singapore’s supply chain for oil products and bunkering operations continue to function without disruption.

Sembcorp's own troubles with the oil price crash

For Sembcorp Industries – a major player in the energy and utilities space, oil’s historic price crash at the start of this week also sent its share price tumbling as much as 7% as at 16:00 SGT on 23 April 2020.

On Tuesday 22 April 2020, spot US crude oil fell to -US$37 per barrel, as oil producers were forced to pay traders to buy oil from them as a result of them running out of storage space in the face of the current coronavirus demand wipe-out.

IG’s WTI crude and Brent crude futures also each plummeted as much as 55.83% and 20.05% to lows of US$7.26 and US$20.11 per barrel respectively.

SembCorp Industries’ share price is down over 31% since the start of the coronavirus outbreak.

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