Reported fraud at S'pore unit leaves OW facing bankruptcy

Singapore

ALLEGED fraud at its Singapore subsidiary as well as a significant risk management loss have left key marine fuel supplier OW Bunker (OW) facing possible financial collapse.

Following its report on Thursday of a fraud case at its Singapore unit, the Denmark-based group announced on its website later in the day that it has decided to file for a court restructuring process.

"Following the announcement regarding fraud in Singapore and significant risk management loss, the board of directors regrets that it has not been able to find a solution with the syndicate banks. On this basis, it has been decided to file for commencement of in-court restructuring procedure in the subsidiaries OW Bunker & Trading A/S and OW Supply & Trading A/S at the probate court in Aalborg. The main operational activities of the group are located in these companies, which are expected to be insolvent," the group wrote on its website.

The statement added that although the financial impact of the move cannot be assessed for the time being, it warned that it should be assumed that the group's equity has been lost.

The Business Times tried contacting OW chief executive Jim Pedersen in Denmark but he was unavailable for further comment.

On Wednesday, red flags were raised when the company, which was only listed on the Copenhagen Stock Exchange in March this year, halted the trading of its shares, followed by a ShippingWatch report later that irregularities had emerged at OW's Singapore office, and that two officials with the company were being questioned.

Those reports were confirmed on Thursday when OW revealed that two senior employees at its subsidiary Dynamic Oil Trading (DOT) in Singapore were being investigated for alleged fraud. In a press release, the group said that its management was informed on Wednesday of the events at DOT, with preliminary findings pointing to a potential loss of US$125 million.

Separately, the group also revealed that a review of its risk management contracts showed a risk management loss, in addition to the loss of US$24.5 million announced in October. In total, that put the mark to market loss for the company to about US$150 million as of Thursday.

As a result of this, the company has dismissed its head of risk management and executive vice president Jane Dahl Christensen.

OW said that the purpose of the in-court restructuring procedure is to establish whether a basis for continued operations of the companies can be established, including a basis for injecting further capital or other similar solutions.

Bunkering is the process of supplying fuel to ships and according to Yaw Yan Chong, director (Asia) at Thomson Reuters Oil Research and Forecast, OW plays a key role in this process by being an intermediary between the large multinational fuel suppliers, such as Glencore, Shell and ExxonMobil, and the SME-sized barge operators that deliver fuel to ships. "It is a large enough company for the big suppliers to trust them to give fuel on credit terms, while its large size helps OW itself to then give fuel to the smaller suppliers on credit terms," Mr Yaw told BT.

In 2013, OW's total transaction volume grew 32 per cent to 29.2 million tonnes, making it a joint global market leader with approximately 7 per cent market share.

The impact of OW's collapse will be felt in two ways, Mr Yaw said. "From the supply-side, we will now to need to know who these companies are that are exposed to OW? If they are big companies, then a loss of payment for 25-29 million tonnes is not such a big deal, but if they are medium-sized companies then it could be a big problem and affect them quite significantly." There could be a short-term supply disruption too.

In Singapore, OW was the 13th largest bunker supplier in Singapore last year, Maritime and Port Authority of Singapore (MPA)statistics showed. While cases of bunkering fraud in Singapore are not uncommon, the widely publicised OW case will have some impact on Singapore's reputation as the world's top bunkering port. But it is not something that it cannot bounce back from, Mr Yaw added.

"We understand the matter is being investigated and we are awaiting further details," MPA said in response to BT queries.