OW Bunker case may reverberate through Singapore's bunkering industry

Singapore

THE OW Bunker fraud case that hit Singapore's bunkering industry last week may not have caused major disruptions to fuel supply in ports here, but the financial fallout may yet unsettle the industry as companies start making their credit claims.

Already, at least two oil traders are said to be filing legal claims.

The Maritime and Port Authority of Singapore (MPA) said in a statement on Tuesday that there are more than 60 bunker suppliers in Singapore, and OW Bunker Far East (Singapore) accounted for under 3 per cent of the 42.6 million metric tonnes supplied in Singapore in 2013.

There would thus be "minimal disruption" to the supply of bunker or fuel for ships in the port of Singapore, it said, and added that it was working with the industry and trade bodies, specifically the Singapore Shipping Association (SSA) and the International Bunker Industry Association (IBIA), to contain the impact on bunkering operations in Singapore.

Denmark-based OW Bunker had last week applied for insolvency after reporting a US$125 million fraud in its Singapore-based subsidiary Dynamic Oil Trading (DOT) and a US$150 million risk-management loss. It confirmed that two senior employees in DOT were being investigated for the allegations.

News of OW's collapse had triggered early panic in the ship-fuel markets, sending prices up. In the Singapore port, the price of IFO380-grade fuel has risen 13.5 per cent to US$478.50 a metric tonne since OW's collapse last week, and buyers have scrambled for alternative sources.

One of the two oil traders planning legal action is Hin Leong Trading, Siingapore's largest independent oil trader, which on Tuesday was reported to have been preparing a lawsuit against OW Bunker Far East Singapore to claim S$1.67 million.

A source told The Business Times on Tuesday that Golden Island Diesel Oil Trading was also consulting its lawyer to file similar legal proceedings against OW in Singapore. The source could not confirm the claim amount, but said the company had gone to the SSA for help.

Bloomberg reported that two South Korean refiners, SK Innovation Co and GS Caltex Corp, had indicated that they had also been hit, but declined to say more.

There has been no formal confirmation yet on the number of companies affected or the extent of the claims that could emerge, although a report in trade publication Seatrade Global on Tuesday said that up to five Singapore bunker suppliers could have been hit, with up to a six-figure default payment for some of them; the publication said it believed that up to eight local and international ex-wharf fuel sellers and international oil majors could be affected.

Seatrade Global also said the Singapore bunker market has been hit by a credit squeeze following OW's collapse, as fuel suppliers and barge operators have turned cautious and asked for advance cash payments. Their situation is worsened by OW's reportedly owing 13 banks some US$750 million; since banks are secured creditors, the suppliers are the ones that have been left vulnerable.

An analyst who spoke to BT on condition of anonymity said this could have a cascading effect in the market, with more companies along the supply-chain falling. Companies seeking credit claims from OW may, for example, now tighten their credit terms with other bunker traders to protect their positions.

And as bunker suppliers face stricter credit terms from fuel suppliers, they may, in turn, cut their own credit terms to end operators to protect their own cash flow.

But several unknowns remain, said Yaw Yan Chong, the director for Asia at Thomson Reuters Oil Research and Forecast. Although the exposure from OW's fallout is on several levels - from the banks that lent it money to the fuel suppliers, barge operators and end-users - the extent of this impact can only be determined over time, he said.

A new potential player in the OW saga emerged on Tuesday, as one of Singapore's top 10 bunker suppliers by volume, Tankoil Marine Services, became implicated. Danish media reports quoted Arvid Andersen, the lawyer for DOT chief executive Lars Moller, as having said that the alleged fraud involved large amounts of credit given to Tankoil Marine through "credit sleeving" - the practice of granting unsecured credit in the industry; in this common practice, a third party helps a partner company fund a purchase for which it does not have the required financing or credit to do on its own.

Trade publication Shipping Watch said OW Bunker was known to engage in such financing on a large scale, with the alleged fraud arising from the DOT management having exceeded the internally-agreed limits for such credit terms. Mr Andersen had said that the incident was thus not so much a case of fraud as it was of a breach of internal guidelines.

Although OW had said it was reporting the two DOT employees under the Danish penal code, Danish police say they have yet to receive a report and are now planning to probe the company themselves; Bloomberg quoted a Danish police spokesman as saying that "possibly, there never will be any charges reported".

It was reported on Tuesday that another ship-fuel company, Vanguard Energy, had filed for bankruptcy in Singapore on Oct 29, merely a week before OW's case was reported.

*Strait Talk: OW collapse shocks industry; damage limitation top priority