London-based Mount Street’s investment in an older tanker appears at risk as the ship has languished under arrest in Singapore since early March.
Oil trader Hanwa Singapore seized the 37,800-dwt product tanker Banyan Pride (ex-P Russel, built 2002) in Singapore on 7 March over a $10.5m claim for a cargo that was allegedly misdelivered before the UK investment manager bought the ship.
With the vessel's bareboat charterer in liquidation, Mount Street is faced with few options. It will have to decide whether to settle Hanwa’s claim against an 18-year-old product tanker that VesselsValue estimates is worth only $6.1m. It also could decide to walk away from the ship.
Mount Street said it was unable to comment on an ongoing legal case.
Hanwa's legal dispute dates back to February 2019, when it bought 33,800 tonnes of gasoil from oil trader International Energy Group (IEG), part of Singapore-listed New Silkroutes Group, on a free-on-board basis, with delivery in Nakhoda.
IEG loaded the gasoil onto what was then the P Russel, before it was renamed Banyan Pride. At the time, the ship was owned by its tanker subsidiary TXZ Tankers.
The gasoil consignment, which Hanwa valued at $19.7m, was quickly resold to Prax Petroleum on a cost, insurance and freight basis.
The sales agreement between Hanwa and Prax called for partial payments to be made as and when allotments were sold.
Between 29 March and 17 May 2019, Hanwa received several partial payments totalling $9.2m.
Hanwa’s court affidavit suggested there was some confusion between the buyer and the seller as to whether the payments were for the cargo on the P Russel or an earlier shipment made on a different vessel.
The affidavit also indicated that during this period Hanwa was uncertain about the whereabouts of the cargo.
It eventually found out from IEG’s trading department that about 24,000 tonnes of gasoil had been supplied as bunkers to vessels at sea. The remainder was being stored in a terminal at the Taiwanese port of Taichung under IEG’s name after it was discharged there in April 2019.
Hanwa claimed it still held the bills of lading when somehow the master of TXZ’s tanker signed them and delivered the cargo to Prax.
Those bills of lading appear to have passed through many hands before Hanwa entered the picture, reflecting the numerous times it has been flipped between traders.
According to Hanwa, Sumitomo Mitsui Banking Corp (SMBC) had issued the original bills of lading, and signed them over to Commerzbank in Singapore, which in turn endorsed them to Trafigura.
Trafigura then endorsed them to CIMB Bank, IEG’s financiers. This bank then endorsed them to Hanwa but erroneously sent them back to SMBC, which passed them on to Hanwa.
Hanwa claimed it still held the bills of lading as it had not endorsed title to the cargo to any other party, and the master of the P Russel had no authority to discharge the cargo to Prax or any other entity.
Mount Street stepped into the convoluted saga in April last year, when it bought the P Russel from TXZ in a standard sale-and-leaseback deal.
The investment company paid $6.5m for the ship, with TXZ agreeing to bareboat charter it back for a fixed period of five years at $3,750 per day. The deal included an obligation to buy the ship back.
The ship was renamed Banyan Pride under the ownership of Iolani Shipping, a special purpose shipowning vehicle.
Hanwa argued that despite the change of ownership and name, it had the right to arrest the ship as it had filed a claim against it with the Singapore courts in June 2019, which was prior to the sale. It further argued that TXZ was still its demise charterer.
Getting the cash Hanwa deems it is owed by TXZ could prove difficult. In January this year, New Silkroutes placed IEG and subsidiary TXZ into voluntary liquidation.
New Silkroutes, whose main business interests lie in the healthcare sector, said in an exchange filing that the decision to begin the winding-up process was taken due to the volatile oil markets and the inability of IEG to pay its debts.
Under the sale agreement with Mount Street, New Silkroutes would become the corporate guarantor for the leasing deal should IEG go into default.