This is OW Bunker's secret and giant Singapore business

Is it possible to hide an elephant in a cupboard? ShippingWatch has obtained Dynamic Oil Trading's 2013 annual report and examines the results in the article below. Would the investors have bough shares in OW Bunker if they had read the following? Judge for yourself.
Photo: OW Bunker
Photo: OW Bunker

OW Bunker's Singapore subsidiary, Dynamic Oil Trading, which wound up delivering the final blow to the major Danish bunker company, established a giant billion-dollar business in the big Asian port in record time.

This is evident from a review of the annual report, till now kept away from the public eye, performed by ShippingWatch with the help of several external experts. Not until now, after OW Bunker has sunk to the bottom of the sea, has it become possible to shed some light on the company's enormous and ultimately fatal transactions.

Dramatic growth

Most companies would be proud to boast of a success story, about growth from nothing to billions in less than a year and a half. Especially if they were facing an IPO. And the creation of Dynamic Oil Trading does, on paper, represent a success story.

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From its establishment on August 24th 2012 to the end of 2013, Dynamic Oil Trading, or DOT, saw its revenues soar from zero to USD 2.1 billion.

And this was done without in any way slowing down the sister company in the city state of Singapore, as OW Bunker Far East grew its revenue by no less than 41 percent from 2012 to late 2013, to USD 4.7 billion.

Not a word about DOT

But OW Bunker CEO Jim Pedersen never mentioned the Singapore success story during the more than 100 meetings with investors and analysts ahead of the IPO. At least not the part concerning Dynamic Oil Trading. There is not one word about DOT in the 272-page prospect, and the company is only mentioned in the annual report in a note listing OW Bunker's more than 50 subsidiaries.

Not until after the bankruptcy was OW Bunker suddenly able to inform that two employees in subsidiary Dynamic Oil Trading had committed what the company described as fraud, resulting in loss of USD 125 million.

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When Jim Pedersen was out peddling shares for USD 535.5 million to potential investors, including shares for almost USD 502 million offered by private equity fund Altor and USD 5.1 million of his own, he would much rather talk about OW Bunker's conservative management style and bulletproof oil market and credit risk management. All investors were also told that OW Bunker was world-leader with a seven percent market share.

Ranked 30th in Singapore

According to OW Bunker, the market for ship fuel stands at 372 million tons, of which 252 million tons are actually used by the ships, while the rest is part of internal trades between the bunker companies.

Singapore is by far the most important single market, with 42.6 million tons loaded last year. But even though Singapore is the world's most important bunker market, OW Bunker was in this exact location - and in a best case scenario - a second-division player. According to official statistics from Singapore's Maritime and Port Authority (MPA), OW Bunker was in 2012 ranked 30th among the port's approximately 60 bunker companies, and 13th in 2013.

In relation to OW Bunker's bankruptcy, the authorities inform that OW Bunker was in fact responsible for less than 3 percent of the total ship fuel delivered in Singapore last year - significantly less than OW Bunker's alleged global market share.

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In all fairness, the port authority's numbers do only cover one of OW Bunker's subsidiaries, OW Bunker Far East (Singapore). The newly established sister company Dynamic Oil Trading does not figure in the statistics, for the simple reason that the company does not have the legally required license necessary in order to sell bunker to ships in the Port of Singapore.

USD 1.89 billion revenue

The giant revenue was achieved by trading with other bunker companies,, including Tankoil Marine Services, allegedly the primary company responsible for DOT's USD 125 million loss. In the period 2012 to 2013 Tankoil Marine Services grew from one of Singapore's smallest companies performing physical fuel deliveries - from number 67 in 2012 to number 7 during 2013.

But Singapore has - in spite of the giant revenue - not been a particularly golden business for DOT.

In 2013 OW Bunker as a group only made a USD 0.21 gross profit per USD 16.7 fuel that was sold, and it is worth noting that the gross profit represents the figure before expenses related to sales, administration, salaries, fuel deliveries and additional costs.

The investors were well aware that OW Bunker was operating with hair-thin margins. But Dynamic Oil Trading's first and only annual report shows that the company made a mere USD 0.10 per USD 16.7.

Very small profit

This was, however, significantly better than the earnings achieved by sister company OW Bunker Far East, which made just USD 0.05 per USD 16.7 fuel sold.

DOT's latest annual report covers the period from when the company was established on August 24th 2012 to the end of 2013. But if one combines the two companies' revenue, they sold fuel for a total USD 6.8 billion according to the dollar rate in late 2013.

This resulted in a gross profit of just USD 27.7 million, and a bottom line after taxes for the two companies combined of USD 16 million, corresponding to 0.2 percent of the revenue.

OW Bunker in fraud case of USD 125 mln

Some of OW Bunker Far East's revenue comes from selling to other sister companies, but even when accounting for this, the two Singapore companies' combined earnings came to less than one third of the earnings OW Bunker presented in its consolidated annual report for the group.

As Singapore last year accounted for 28.5 percent of OW Bunker's combined revenue, this indicates that there must have been a much better profit elsewhere in the group. Because if not, the math just does not add up. It remains a mystery where this profit comes from, as competition is no less fierce in the other markets where OW Bunker was active.

It thus becomes natural to imagine that the company made money by speculating in the oil price in OW Bunker's "risk management" division, though the company's management has repeatedly rejected this notion. As such, it remains unclear where this money comes from.

Invoices insured

Accounts for the two Singapore companies also show other oddities. The "old" subsidiary, OW Bunker Far East, paid its parent company around a million dollars last year to have its credit contracts insured, so that the company would not lose money if some of the customer invoices, for a total of USD 211.5 million, relating to external customers were not paid.

Does the OW Bunker management have a case?

OW Bunker stated in its prospect that part of its credit management included insuring 70 to 75 percent of the invoices against credit losses. Only small customers, and major companies that OW Bunker were intimately familiar with, were not covered by this, according to the company.

Last year OW Bunker paid a premium of 3.96 percent of the maximum insurance figure, USD 198 million. But OW Bunker paid just 0.49 percent in gross premiums of the combined invoices to its parent company, likely because a significant portion of the invoices were uninsured.

According to news agency Reuters, employees from accounting firm KPMG have already started working to liquidate OW Bunker Far East, and the company has seemingly secured a temporary loan from major Dutch bank ING, which served as OW Bunker's bank alongside Nordea.

Meanwhile, two South Korean refineries have joined the long list of creditors that are now considering lawsuits against OW Bunker or companies or individuals related to the collapsed company.

This article was produced in cooperation with FinansWatch and EnergiWatch

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