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Old 12-01-2004, 03:08 PM
Louis Cypher Louis Cypher is offline
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Default Chinese oil trader loses 550 million dollars in derivate trading

Wed Dec 1, 2:20 AM ET


SINGAPORE (AFP) - A Singapore-listed Chinese company that sources jet fuel for China is in deep trouble after losing 550 million US dollars in speculative oil trades, triggering concern over other China-linked stocks.

China Aviation Oil (Singapore) Corp.'s losses, announced by the company late Tuesday in a statement to the Singapore Exchange, equal its market capitalisation of 549 million US dollars, raising serious questions about the unit's future.

It is the largest amount a company in Singapore has lost by betting on derivatives since rogue British trader Nick Leeson bankrupted Barings Investment Bank when he blew more than one billion US dollars in the 1990s after getting the bond market wrong.

In the statement, China Aviation Oil said its high-flying chief executive officer, Chen Jiulin, has been suspended from duty pending an independent audit of the firm's losses by PriceWaterhouseCoopers.

The company said it has also sought help from Singapore's High Court to work out a repayment scheme with its creditors.

Its Chinese government-owned parent, China Aviation Oil Holding Co., has established a task force to oversee its daily operations.

China Aviation Oil admitted the huge losses came through "speculative oil derivative trading," blaming the situation on record high oil prices in October, which it called wrong, expecting them to fall instead of rise.

"As the prices of crude oil were at an all time high at above 55 US dollars per barrel, the company faced significant margin calls on its open positions and did not have the resources to satisfy the margin calls," it said.

To help cope with the situation, China Aviation Oil turned to its parent firm, which provided an emergency loan of 100 million US dollars, but that proved to be too little, too late.

"This loan quickly proved to be insufficient to satisfy the company's requirements ... a more complete rescue proposal would be required."

Derivatives allow an investor to take what can be a highly leveraged position in an underlying security or asset based on its likely price in the future.

If the market behaves as expected, the returns can be spectuclar, as can be the losses if it does not.

Analysts said the losses racked up by the company reflect the poor level of corporate governance within its top management.

"They gambled on the wrong side so they lost," said Eswaran Ramasamy, director for Asian oil markets at energy information provider Platts.

"What I am very concerned about is the lack of transparency in the company." Ong Eng Tong, an independent oil consultant with almost 40 years of industry experience, said the sorry state of the company exposed its lack of management control.

"Their business is the jet fuel business ... they should have concentrated on that," Ong said.

China Aviation Oil supplies one third of China's total jet fuel needs and has a monopoly on such imports into the mainland.

The fallout from the disaster at China Aviation Oil, formerly regarded as one of the leading Chinese firms to list in Singapore, was being felt on Wednesday by other mainland firms that are publicly traded here.

Most Chinese-listed stocks were taking a beating as investors bailed out on worries about their level of corporate governance, dealers said.

"Its really shocking ... It reflects weak corporate governance and will hit sentiment in other Chinese stocks," a local research analyst, who did not want to named, said of China Aviation Oil (Singapore) Corp.

In morning trade, several Chinese stocks were among the top 40 losers on the local exchange.

Among them were China Petrotech, which fell 2.5 Singapore cents or 5.16 percent to 46 Singapore cents, and Hongguo International, which lost 10 cents or 4.55 percent to 21 cents.

Shares of China Aviation Oil (Singapore) Corp. have been suspended since Monday.
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Old 12-02-2004, 01:19 PM
Louis Cypher Louis Cypher is offline
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Default RE:Chinese oil trader loses 550 million dollars in derivate trading

Experts Examine China Aviation Oil Books

Thu Dec 2, 5:40 AM ET Business - AP


JAKE LLOYD-SMITH, Associated Press Writer

SINGAPORE - Financial experts combed through records Thursday at China Aviation Oil, the jet fuel supplier that sought court protection from creditors this week after admitting losses of US$550 million (euro414 million) from speculative trading.


Singapore's stock exchange, where the company is listed, had asked PricewaterhouseCoopers to investigate the drastic loss, which has shaken the city-state's financial community.


China Aviation Oil (Singapore) Corp. spokesman Gerald Woon said experts from the accounting firm were in the office.


China Aviation Oil supplies most of the jet fuel used in China. It is based in Singapore, a major oil-trading center, but majority-owned by China's state-linked China Aviation Oil Holding Co.


The Singapore-based company stunned investors and markets regulators Tuesday when it admitted racking up huge losses after speculative bets on energy markets turned sour.


It has received a US$100 million (euro74.8 million) cash injection from its parent group which is also probing the losses and is talking to creditors and some shareholders about a possible rescue plan.


The affair has stoked anger and confusion in Singapore, which prides itself on tough corporate disclosure standards. The government aggressively promotes the country as a financial hub.


In an editorial Thursday, Singapore's Business Times newspaper described the matter as a "catastrophic failure" and asked whether there should be a wholesale review of Singapore's financial regulations.


"Is there a need for an independent watchdog to regularly check on corporate financial dealings?" it said.


China Aviation Oil said Tuesday that its directors knew in October that it was facing severe difficulty, but they felt it better to conceal the mounting losses until a potential rescue plan was mapped out.


The company's chief executive, Chen Juilin who was suspended Tuesday has left Singapore for China, The Straits Times newspaper reported Thursday.


"I apologize to shareholders. I have made my best endeavors for the benefit of shareholders and the company," Chen was quoted as saying.


The debacle has evoked memories in Singapore of the 1995 collapse of Britain's Barings Bank, which was brought down after Singapore-based trader Nick Leeson ran up billions of dollars in losses when his market gambles went awry.
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Old 12-03-2004, 12:19 PM
bazanster2 bazanster2 is offline
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Default RE:Chinese oil trader loses 550 million dollars in derivate trading

LC,

As usual, thanks for the good read.
Have to wonder why they didn't play Oil in the Commodity Option Markets instead
of the Futures. The leverage offered can be even greater while only risking the premium.
Wonder if Chen Jiulin will be convicted of any crime other than poor speculation?

gl,

baz
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Old 12-05-2004, 05:05 PM
Louis Cypher Louis Cypher is offline
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Default RE:Chinese oil trader loses 550 million dollars in derivate trading

Hi BAZ,

Thanks for the kind words...hope all is well! I'll be stopping in here from time-to-time-that's of course if I get crazy ass financial stories like the one above...that's crazy!!! They should have learned ever since the Nick Leeson debacle!

LC
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Old 12-08-2004, 08:08 PM
Louis Cypher Louis Cypher is offline
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Default RE:Chinese oil trader loses 550 million dollars in derivate trading

Wednesday, December 8, 2004

Singapore police detain China executive

By CHRISTOPHER TORCHIA
ASSOCIATED PRESS WRITER

SINGAPORE -- Police detained the suspended chief executive of Beijing-backed China Aviation Oil's subsidiary in Singapore after he returned to the city-state on Wednesday, following the company's announcement of massive trading losses.

Chen Jiulin left Singapore after the company announced last week that it had lost $550 million on derivatives trading, forcing it to seek court protection from creditors.

A company spokesman said Monday Chen had agreed to return to face investigators in what is seen as the biggest financial scandal in the city-state since the collapse of Britain's Barings Bank in 1995.

He later was released on bail, authorities said. No charges have been filed.

The Chinese parent company could also come under the scrutiny of criminal investigators in Singapore. The investigation is sensitive because the parent company is owned by the Chinese government, a close trading partner of Singapore.

Earlier Wednesday, the Singapore Stock Exchange said the parent company had expressed regret over the massive losses of its jet fuel supplier.

Court documents show that the Chinese parent company knew about the losses when it sold a big stake in the Singapore-listed jet fuel trader, prompting accusations of insider trading.

Late Wednesday, Chen left the office of the Commercial Affairs Department, Singapore's white-collar crime unit, briefly telling reporters that he had returned to help in the investigation.

China Aviation Oil spokesman Gerald Woon said company officials were cooperating fully with criminal investigators, and that four other senior officers had voluntarily surrendered their passports.

China Aviation Oil Corp. supplies most of the jet fuel used in China. It is based in Singapore, a major oil-trading center, but majority-owned by China's state-linked China Aviation Oil Holding Co.

Derivatives dealings allow companies to hedge against risks from price fluctuations by agreeing in advance to buy or sell goods at some future date. They can bring huge gains, but they also carry great risks.

Local media have compared the case to the 1995 collapse of Britain's Barings Bank after Singapore-based trader Nick Leeson ran up enormous losses when his market gambles went awry.
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