Hin Leong: How One of Asia’s Biggest Oil Empire Collapsed

Singapore is one of the world’s biggest oil-trading centers and Hin Leong is a homegrown oil trader in Singapore.

To start with, Hin Leong is in the business of what is called bunkering, which is to supply shipping fuel to all the vessels that come into Singapore ports for refueling. It’s owned and founded by Lim Oon Kuin, also known as OK Lim.

OK Lim was born in Fujian province of China. He immigrated to Singapore in the 1950s. From the associates who have known OK Lim for decades, he was described as a low-key, humble and an aggressive oil trader who was honest in his origin. He was also known as a keen poker player.

He started off as a one-man, one-truck business. He would buy fuel from oil majors, parcel it up into smaller volumes and resell it to taxi companies, to bus companies as well as to fishing boats. OK Lim’s business later developed to involve a lot more of tank trucks and entire fleet of vessels that will work as an integrated supply system.

This in return, allowed him to buy, float and sell fuel to customers around the region.

Hin Leong actually developed alongside the Singapore oil trading hub. As more and more boats came to Singapore to dock and refuel, Hin Leong grew because it was opportunistically at the right place at the right time.

Different from stock-market trading, where information are basically available publicly, oil traders in the world rely on the information private to a small group and find business opportunities through them. OK Lim was a trader with a very big appetite for risk. He also thrives in the very opaque and secretive market of oil trading in Asia. For example, at any one point in the Asian market, no one trader would actually know exactly how much supply and demand there is at any given time.

OK Lim would reach deep into his resources and leverage on his relationships with his counterparts to actually figure out what exactly was happening in the market and therefore to make bold decisions to dominate the market and create a trading position that was beneficial for himself.

Once enough physical stockpiles were purchased in the market, disruptions occurred which squeezed the market and push the prices higher. Hin Leong and OK Lim was always able to sell the inventories and sell the products to end users or other merchants for profit. This strategy was one of the source of his success for decades but not for this time.

In April of 2020, banks were pulling financing and credit lines away from Hin Leong. As we know, financing, credit lines and liquidity are the lifeblood of trading. Analysts knew something big was brewing, but they didn’t know what it was yet.

In the coming weeks, more information and answers were unveiled.

Covid-19 brought the global economy to a screeching halt and one industry that was hit particularly hard was oil. The price of a barrel of West Texas Intermediate (WTI), which is the benchmark for U.S. oil, went historically as low as -$40 a barrel.

During this time, Hin Leong barely hedged the physical stockpiles it purchased. All of its physical stockpiles were purely exposed to the market fluctuations. The oil benchmark prices slumped on coronavirus outbreaks in the world. The value of physical stockpiles of Hin Leong reduced.

From sources gathered, it was well established that OK Lim made the opposite bets on the oil prices as he believed China will soon put the coronavirus in control and that demand will recover very quickly. He wasn’t wrong though, the first half of his prediction was right, China did contain the outbreaks of coronavirus, but what OK Lim didn’t see was, the outbreak turned into a pandemic which created larger demand destructions.

This was when banks started coming after him, asking him to repay the unpaid debts. Dozens of commercial and investments banks in Singapore had a combined exposure of US$3.5 Billion to Hin Leong. Out of this huge sum, HSBC had the biggest exposure of $600 Million, other banks banks such as ABN and DBS had a $288 Million and $300 Million exposure to Hin Leong respectively.

Analysts soon realized that Hin Leong had actually not made any profits for a couple of years and that some of the oil that Hin Leong used for collaterals were actually already resold to other customers. It was shocking to see that the company had actually hid $800 Million in losses.

The growth model of Singapore, Southeast Asia and China have changed through these years. That could be part of the reason why Hin Leong didn’t make any profits. Many countries start seeking replacement from traditional fossil energy, replacing them with renewable energy such as solar.

The coronavirus outbreak is just the trigger of its collapse.

After the Hin Leong episode, when some banks found themselves with hundreds of millions of dollars of losses, we are seeing that the oil industry in Asia is going through somewhat of an evolution where smaller companies are finding it harder to get credit lines and financing, and even bigger, more reputable companies are also finding that credit lines are being shrunken.

As of February this year, more than 20 banks are fighting to recover $3.5 Billion in loans made to the company. Applications have be made to freeze assets, shares and funds held by Lim Oon Kuin and his two children.