NewOcean will look to sell bunkers only to other suppliers in Hong Kong in future. File Image / Pixabay
NewOcean Energy has warned of 'cut-throat tactics' among bunker suppliers as the company dropped into losses for the first half of the year, and plans to withdraw from bunkering in Hong Kong in favour of selling marine fuels wholesale.
The company posted a loss of HK$1.35 billion ($174 million) in first-half results released Monday, down from a HK$301,888 profit in the same period a year earlier.
The gross profit margin from the company's oil products trading has been reduced to 1.1% from 4.28% a year earlier, the company said.
"Since our major competitors had turned to cut-throat tactics to sell products in large lots at low prices for cashing in during March and April, the Group unwillingly had to use the same tactic for our oil products business, that was to sell products below costs for the depletion of its holding stock so as to avoid further impairment risks as a result of the ongoing oil price slump," the company said.
"These explained the recorded negative gross profits in our marine bunkering business during March and April."
Margins returned to profit in May and June, the company said.
The unexpected financial problems of Singapore-based Hin Leong Trading this year have made NewOcean's lenders more wary of lending to it, the company said.
Banks in both Singapore and Hong Kong have apparently became very concerned that there could be further defaults by oil traders.
"Banks in both Singapore and Hong Kong have apparently became very concerned that there could be further defaults by oil traders as oil prices drop and accordingly began to tighten their credit lines to other oil traders in the market, including the Group," NewOcean said.
"As a result of that and despite that the Group has no business or other connection with Hin Leong whatsoever, a number of the Group's banks demanded a reduction or limitation of the documentary and other short term credit extended to the Group.
"Given that the business of the Group is heavily relied on the support of these credit facilities granted by the bank, and that the COVID-19 epidemic had halted pre-sale of property in the Zhuhai commercial development schedule for the first half year of 2020 as reported above, the Group has experienced short-term liquidity pressure in settling bank trust receipts loans when they fall due."
This has prompted the company to downsize its oil products business to reduce operating costs and raise cash, it said.
Hong Kong Withdrawal
The oil products business will now be 'modestly scaled down' including a retreat from Hong Kong bunkering operations, NewOcean said.
"Since the costs of refuelling business in Hong Kong are relatively high, the Group is committed to selling wholesale to clients who are distributors, and to lease its existing oil tankers to wholesalers," the company said.
"As to our business in Singapore, certain level of its operations will remain as marine bunkering business, with oil products of relatively stable gross profits and high commodity flow being the key.
"Meanwhile, the Group will take the occupancy of around 100,000 tonnes among the total leased capacity of 300,000 tonnes, while the remaining 200,000 tonnes will be leased to third parties for cost saving purposes."