RUNNING out of luck with creditors and facing mounting distress, Singapore's giant oil trader Hin Leong Trading (HLT) - and its sister company Ocean Tankers - sought indulgence from 23 lenders on Friday as it applied for court protection from credit action to ensure its "survival".

In a letter to lenders that was obtained by The Business Times, HLT director Evan Lim Chee Meng said the firm was facing a "real threat" of legal or insolvency proceedings or "enforcement steps" that would undermine its debt restructuring efforts and jeopardise HLT's position as a going concern.

HLT, Asia's largest oil trader, is weighed down by hefty debts of some US$3 billion and is facing a major crisis as oil prices have been ravaged by the Covid-19 outbreak and a price war among oil majors.

Founded by low-key tycoon Lim Oon Kuin, whom many in the industry describe as a "workaholic", the company said it was "constrained" to seek a debt moratorium following "numerous demands" for payment by banks and "numerous accompanying calls and emails correspondence".

"HLT urgently and critically needs to use all its resources and management capacity to stabilise its management, business and operations as far as possible and to work with its creditors and advisors on the proposed debt restructuring," said Mr Evan Lim, the son of the group's founder, in the letter dated April 17.

Talks with bank lenders and an informal steering committee (ISC) had "unfortunately" not resulted in an agreement for an "informal standstill", he said, adding that there was also no certainty if such an agreement was possible. On that note, he explained that the firm was unable to continue without any protection from credit action.

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HLT will work closely with PwC to protect and preserve its assets and cash. If a majority of the bank lenders oppose its application for the debt moratorium, it will instead file for judicial management or an interim judicial management instead, he continued.

In addition to HLT, the Hin Leong Group's sprawling empire comprises Ocean Tankers - one of the world's largest owners of oil tankers; Ocean Bunkering Services - one of the city state's top three marine fuel suppliers; and Universal Terminal - a massive commercial storage facility in Jurong Island, which it co-owns with China's oil giant PetroChina.

The ripple effects of trouble at the group's flagship HLT are showing up across its other sizeable businesses.

Following HLT's application in Singapore's High Court for the moratorium order (under section 211B of the Companies Act), Ocean Tankers has also followed suit as HLT's "financial distress" has exposed the tanker owner to liabilities.

This is because HLT has nominated vessels that are chartered or operated by Ocean Tankers for a majority of its trades, said Ocean Tankers' chief executive Evan Lim in a separate letter to lenders that was obtained by BT.

Ocean Tankers has issued bills of lading for the trades that are held by "various parties in the sale or banking chain", including HLT's bank lenders.

"Some of these cargoes under these bills of lading may have been discharged against instructions or letter of indemnity issued by HLT. (Ocean Tankers) may be liable, as the issuer of the bills of lading, to the lawful holders for the loss of the cargoes.

"Although (Ocean Tankers) may be able to look to HLT for an indemnity against such liability, it is unlikely that HLT is currently in a position to meet such an indemnity," Mr Lim added.

As a result, he said the company faces a "real and immediate risk" that the holders of the bills of lading could issue writs against and arrest its vessels. Already, ICICI Bank - one of HLT's bank lenders - has issued writs against two of Ocean Tankers' vessels.

Ocean Tankers, he said, is also planning to undertake its own debt revamp.