The Board of Directors of China Aviation Oil (Singapore) Corporation Ltd (the “Company”)
wishes to announce that 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 realised and unrealised) incurred by the Company is approximately US$550 million.
To address the debt that has arisen from the CompanyÂ’s trading losses, the Company will be
proposing a scheme of arrangement with its creditors for the settlement of all existing debts and
liabilities.
Accordingly, the Company has, on 29 November 2004, applied for and and obtained, an order
from the High Court of Singapore (the “Court”) pursuant to Section 210 of the Companies Act of
Singapore for the Court to fix a date for the hearing of an application by the Company to convene
a meeting of its creditors for the purpose of considering and if thought fit, approving with or
without modification a scheme of arrangement proposed to be made between the Company and
its creditors.
Background to Losses From Derivative Trading
The Company commenced trading in oil derivatives on its own account from 2003. Whilst part of
the derivative trading was for hedging purposes, the Company also engaged in speculative
derivative trading.
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. From 26 October 2004 to date, the
accumulated losses from these closed positions amounts to approximately US$390 million. The
Company is in the process of closing the remaining outstanding positions and estimates the losses
from the closure of these positions to be approximately US$160 million.
Action Taken by The Company
Since the advent of the above liquidity issues by the Company, the Company has taken the
following steps:
1. Shareholder’s Loan from China Aviation Oil Holdings Company (“CAOHC”)
The Company has requested, and CAOHC granted to the Company, a shareholderÂ’s loan
of approximately US$100 million for the Company to meet its liquidity requirements.
The loan has been fully disbursed and applied to meet the margin calls and to satisfy part
of the realised losses suffered by the Company.
2. Immediate termination of the CompanyÂ’s speculative oil derivative trading activities
To check the mounting losses suffered by the Company from the increasing oil prices, the
Company has halted all its speculative oil derivative trading activities with the exception
of the closing at the remaining open positions.
3. Suspension of duties of Mr Chen Jiulin
The Board of Directors further wishes to announce the suspension of duties of Mr Chen
Jiulin, the Chief Executive Officer of the Company, with immediate effect pending the
release of the report of the Special Investigation refered to below.
4. Special Investigation
The Exchange, pursuant to Rule 704(12) of the Listing Manual, has required the
Company to instruct PricewaterhouseCoopers as special investigative accountant to
review and investigate the CompanyÂ’s affairs relating to the incurrence of the loss and its
surrounding circumstance and report its findings to the Exchange (“Special
Investigation”).
Pending the release of the Special Investigation report by PricewaterhouseCoopers, the
Company believes it is inappropriate to make any further comments on the circumstances
relating to the incurrence of the derivative trading losses by the Company.
5. Appointment of a Special Task Force
The Board of Directors, with the support of CAOHC, has appointed a special task force
(“Special Task Force”) led by Ms Gu Yanfei, General Manager, Investment Department
of CAOHC and director of the Company, with the authority of the Board to lead the
restructuring, investigation and rehabilitation process as well as to supervise the day-today
operations of the Company on its behalf. The Special Task Force shall continue to
manage the critical affairs of the Company until further announcement.
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Suspension of trading in the CompanyÂ’s shares
In the meantime, the Directors deem it necessary to request for suspension of trading in the
Company's shares until a satisfactory arrangement has been agreed with the creditors of the
Company or a scheme of arrangement of the CompanyÂ’s debts has been sanctioned by the Court.
Subject to the confirmation of the Exchange, the trading of the shares of the Company will
remain suspended until further notice.
In october they placed out 100 million shares at $1.35 per share but hid this problem from investors.
tomorrow a lot of uncle/aunty will be crying...these china ppl cannot trust a single 1 all are very good at cheating and bluffing.
I wonder if this will develop into another recession for singapore as it did with the Pan-El and Barings debacle.
Lack of risk management measures...
Now I think there's a huge potential for risk management industry in Singapore... Not just the banks need it...
This is ridicious, one prob after one
In all 3 cases of collapse it was due to futures derivatives trading
For Pan Electric in the 80's was due forward contract equity futures.
For nick leeson's Barings was due to currency futures
Now for CAO is due oil futures.
In all 3 cases they tried to hide losses.
Rumour circulating now that the huge losses were found made in October they didn't announce and tried to cover losses by issuing 100 million shares at $1.35 each in a placement presumably to use the money raised to help pay off the losses. Those shares probably would have ended up in some poor uncle or aunty retirement savings plan.
If the above is proven by current CAD investgation is tantamount fraud and insider trading. Somebody is going to jail.
