The trading arm of an independent Chinese refiner went into receivership this week, sending ripples of worry across the industry that more pain is yet to come.

Reuters reported the news, citing a KPMG official after the audit major was appointed receiver for Hontop Energy, a unit of Shandong-based Tianhong Chemical Co.

“Hontop continues to be run by the existing management. The receiver has been appointed over specific charged assets which mainly relate to one trade transaction financed by [Singapore bank] DBS. Their involvement is limited to realizing DBS’ security and to discharge DBS’ debts,” a partner for a law firm acting on behalf of the oil trading company said.

Bloomberg noted that the news would elevate fears about the financial health of the so-called teapots: the independent refiners that became the driver behind China’s growing imports of crude oil.

“Many of the teapots are already on a credit redflag list of banks in Singapore,” the news agency quoted an Oxford Institute for Energy Studies executive as saying. “The virus has certainly tightened cash-flows and exacerbated banks’ concerns.” Michal Meidan, director of the institute’s China Energy Programme said.

Earlier this week, Reuters reported that international banks were suspending credit lines for some independent oil refiners worried about the growing risk of defaults across industries because of the coronavirus epidemic.

According to unnamed industry sources, at least three private Chinese refiners have had credit lines to the tune of $600 million suspended by banks including French Natixis, Dutch ING, and Singapore DBS Group Holdings.

According to Bloomberg, however, the private Chinese refiners’ financial trouble is unlikely to affect overall Chinese demand for oil. What is affecting it severely, however, is the continuing epidemic, which has now spread on three continents, fueling new concern about the global economy, with some even warning that a recession was on the way as the virus outbreak could turn into a pandemic.

By Irina Slav for Oilprice.com

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