Hmmm. China CCP party will pay the rest and blame Singapore for allowing options trading?
Wednesday December 1, 7:57 AM
Singapore China Aviation: US$550M In Derivatives Loss
SINGAPORE (Dow Jones)--China Aviation Oil Ltd., (C47.SG) a Singapore-listed Chinese jet fuel supplier, is seeking court protection from creditors after racking up US$550 million in losses from derivatives trading, the company said late Tuesday.
This is the first time China Aviation Oil has revealed the extent of losses from speculative trading. Last month it reported a pretax loss because of trading losses and later said it will close all "speculative derivative trading positions" by the end of November.
"The company has suffered significant losses from speculative oil derivative trading. As at 29 November 2004, the company estimates that the total cumulative losses (both realized and unrealized) incurred by the company is approximately US$550 million," the directors said in a statement to the Singapore Exchange.
"To address the debt that has arisen from the companys trading losses, the company will be proposing a scheme of arrangement with its creditors for the settlement of all existing debts and liabilities," it added.
Its parent company, state-owned China Aviation Oil Holding Co., has given China Aviation Oil a US$100 million emergency loan to cover some of the losses.
A restructuring plan is also being considered, the company said.
Chief Executive Chen Jiulin has been suspended while PricewaterhouseCoopers investigates the company for the Singapore Exchange.
Trading in CAO shares have been suspended since Monday and will remain suspended.
This could the biggest case of losses from speculative trading to hit Singapore since trader Nick Leeson rung up US$1.2 billion in losses that eventually led to the collapse of Barings Bank in 1995.
Parent China Aviation Oil Holding Co., which has a 60% stake in the unit, has approached Temasek Holdings Pte. Ltd., the Singapore state investment agency, to help restructure the Singapore unit.
In a proposal being considered, the parent and Temasek could inject US$50 million each in the Singapore unit. The talks are unbinding. Temasek has a 2% deemed stake in the Singapore unit.
China Aviation said it began speculating in oil derivatives in 2003 and was hit in October when prices reached record high this year.
"In October 2004, international oil prices rose steeply leading to the company having to face significant margin calls on its open derivative positions. The company was unable to meet some of the margin calls arising from its speculative derivative trades, resulting in the company being forced to close the positions with some of the counter-parties," the company said in the statement.
The company's creditors include DBS Bank Ltd., a wholly owned unit of DBS Group Holdings Ltd., United Overseas Bank Ltd., BNP Paribas, Fortis Bank, Societe Generale, Bank of Communications, Industrial and Commercial Bank of China, and Natexis Banques Populaires, the Business Times reported Wednesday.
China Aviation will seek to restructure the debt, but some creditors have already threatened legal action, it said.
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Corporate Profile
China Aviation Oil (S) Corp Ltd is a Singapore-headquartered, multinational investment and oil infrastructure company. Through its investments, it commands a dominant market presence in China's jet fuel distribution sector. It also supplies nearly 100% of China's jet fuel imports, and supplements its procurement activities with international oil trading in a number of products in Singapore's open oil trading environment. CAO strives to become China's first and largest integrated oil company with significant overseas assets.
The controlling shareholder of CAO is China Aviation Oil Holding Company, (CAOHC), a large state-owned aviation transportation logistics group, directly supervised by the Central Government of China. CAOHC owns aviation oil supply infrastructure at over 100 airports throughout China. It is the eighth-largest jet fuel provider in the world, supplying jet fuel to more than a hundred foreign and Chinese airlines.
CAO currently has investments in China and overseas.
Pudong, the fuel supply company at Shanghai Pudong International Airport, is the sole supplier of jet fuel to aircraft plying that facility.
Bluesky, a holding company for 15 additional fuel supply companies throughout Southern and Central China, will post exceptional growth in the coming years.
CLH, a large oil pipeline and infrastructure company operating in Spain, poses interesting long-term opportunities for business synergies as well as paying handsome dividends in the short term.
Shuidong, an oil storage tank farm in Southern China, affords opportunities to expand distribution of imported jet fuel in that region, as well as to further develop CAO's trading operations,
The ENOC MOUs set CAO up as a major force along the oil supply chain running from the Middle East, through Singapore, and into China. (For detailed descriptions of these investments, please see our page, "Business Strategy".)
CAO has successfully expanded its international oil trading business beyond jet fuel, to include fuel oil, gasoline, naphtha, crude oil, and petrochemical products. In order to maximise its profits, CAO has capitalised on both physical and derivatives trading, creating synergies between the two. It has also broadened its market scope to more ASEAN countries, as well as the Far East and the United States.
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