DBS GROUP HOLDINGS LTD (SGX:D05)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
UNITED OVERSEAS BANK LTD (SGX:U11)
Singapore Banks - Impact Of A Hin Leong Trading Default
- Hin Leong Trading Pte. Ltd. filed for bankruptcy on 17 April after it was discovered the company failed to report US$800mn worth of losses arising from derivatives trading.
- Hin Leong has a total of more than US$3.6bn in secured debt owed to 23 different lenders with only US$700mn in assets.
- Local lenders DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11) each have exposure of US$290mn, US$240mn and US$140mn to Hin Leong respectively.
- Earnings of local banks will be impacted by up to 7% as a result of additional provisioning.
Hin Leong Trading Default - Background
- On 9th of April, there were news that Hin Leong Trading was refused borrowing from two lenders, as rumours of the company facing financial difficulties began to spread.
- Over the following week, it was reported that Hin Leong owed upwards of US$3bn to 23 separate lenders while assets stood at only US$700mn. The company had also failed to report US$800mn worth of losses from derivatives trading over the years.
- It was later revealed that Hin Leong had sold a substantial part of the company’s inventories, despite them being used as collateral for bank loans.
- Currently, the company is reported to only own US$141mn worth of oil products inventory, with only US$50mn in cash.
- Hin Leong eventually filed for bankruptcy on 20 April, and is seeking a 6-month moratorium as the company undergoes debt restructuring procedures.
Impact on local lenders
- All three local lenders were among the 23 lenders disclosed to have exposure to Hin Leong. DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11) each have respective exposure of US$290mn, US$240mn and US$140mn to Hin Leong in secured lending which is likely to be impaired. We expect the allowances to be booked in either 2Q20 or 3Q20, which will have impact on the local lenders’ earnings of between 4 – 7%.
- The extent of the impact on the banks’ earning will be contingent on the allowances already set aside in the aftermath of the 2016 – 2017 oil price meltdown. Bank exposure to the oil and gas industry is estimated to be around 2% of the loan book.
Local banks’ exposure to Hin Leong Trading and possible earnings impact
| DBS | OCBC | UOB | |
|---|---|---|---|
| Exposure to Hin Leong | US$290mn | US$240mn | US$140mn |
| FY20e Earnings | S$6,749mn | S$4,835mn | S$4,462mn |
| Impact | 6.1% | 7.1% | 4.5% |
- Source: PSR, Exchange Rate S$1.43, Assuming no collateral is available and full provision is made
Singapore Banks
See also SGX Market Update: Oil Price Gyration – What does this mean for Singapore Banks?
Tay Wee Kuang
Phillip Securities Research
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https://www.stocksbnb.com/
2020-04-22
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