ZenRock's same invoice financed twice — $175M of doubtful bank debt surfaced

ZenRock Commodities Trading, a Singapore oil trader founded by Unipec and Vitol veterans, was placed under interim judicial management in May 2020 after HSBC alleged 'highly dishonest' trade practices. The court-appointed KPMG managers' first report confirmed it: over two years the company had run more than 200 transactions in which the same sales invoice, with identical contracts, obtained two separate sets of letter-of-credit financing for essentially the same deal.

The doubtful LC liabilities across those transactions came to some US$175.3 million as of June 30, 2020. Beyond HSBC's US$50 million exposure, five more banks — Natixis, Crédit Agricole CIB, ING, Bank of China and Banque de Commerce et de Placements — were owed just under US$100 million. Director Xie Chun, the man with the most comprehensive understanding of the firm's affairs, was difficult to engage amid meetings with Singapore's Commercial Affairs Department, which was probing the trader after HSBC's police report.

The strangest finding was a receivables vanishing act. Two entities — one solely owned by Xie Chun's cousin — were recorded as owing ZenRock US$1.6 billion at December 30, 2019; within a single day the figure shrank to US$136 million through unexplained offsets, a year-end pattern the managers said recurred. The underlying trades involved no physical cargo, and from 2016 to 2019 ZenRock paid the cousin's entity over US$100 million in suspicious cash. The managers concluded the business was unlikely to survive in any meaningful form.

The core mechanic was financing the same transaction twice by recycling identical invoices and contracts across banks.

Year-end receivables against related parties were inflated, then netted away overnight without explanation.

Trades with a director's cousin's firm involved no physical cargo while being presented as shipments.

Over US$100 million in cash payments flowed to the related entity across four years, outside any trade logic.

In commodity trade finance, the same cargo cannot back two loans — a lender that never checks for duplicate invoices is financing paper, not trade.

The interim judicial managers were assisting the Commercial Affairs Department's investigation while assessing whether ZenRock had any business left to restructure, concluding that 'any restructuring would, at best, preserve a fraction' of the original oil trading, gasoil blending and derivatives business. Workforce reductions were already underway, and the six exposed banks faced recovery on hundreds of millions in LC facilities.