China Aviation Oil's (中國航油) spectacular trading losses in Singapore highlight the risks of becoming involved with Chinese firms as they increasingly seek listings on international exchanges, analysts warn.
Chinese companies venturing overseas go to great lengths to appear as if they have the same strict corporate governance standards as those in developed economies, but analysts say the changes are often merely cosmetic.
"They have been dressed up but you can't really take them out," the managing director of the Political and Economic Risk Consultancy in Hong Kong, Bob Broadfoot, said.
Broadfoot said the financial scandal surrounding Singapore-listed China Aviation Oil and its high-flying chief executive, Chen Juilin (陳久霖), reflected a culture of low accountability and transparency in many Chinese firms.
China Aviation Oil hit the headlines last week when it appealed to Singapore's High Court for protection from creditors after losing US$550 million in speculative oil derivatives trading that began last year.
The news shocked investors and financial authorities as the company had been regarded as one of the most reputable and successful of the more than 60 Chinese firms listed on the Singapore Exchange.
With a monopoly on importing jet fuel into China's booming aviation industry and having the backing of the Chinese government through a state-run firm owning a majority stake, China Aviation Oil was a darling of investors.
Indeed, the Securities Investors Association of Singapore, which acts as a watchdog for small investors, last year gave China Aviation Oil its "Most Transparent Company" award.
Chen, 43, also won glowing praise, with the local press in Singapore running lavish profiles and global institutions such as the influential Swiss-based World Economic Forum last year naming him as one of 40 "New Asian Leaders."
But now Chen, who flew to China immediately after news of the scandal broke, is wanted by Singapore authorities as they conduct a criminal investigation into the affair and allegations of insider trading are raised.
China Aviation Oil is particularly coming under scrutiny for failing to disclose its perilous financial situation to shareholders when the company's parent firm reduced its stake from 75 percent to 60 percent on Oct. 20.
"This is one more example, and there have been many, where the corporate governance standards of red chips are not what they should be," Broadfoot said, using the term given to Chinese firms listed overseas.
"When it comes to red chips, they are not the most reputable organizations in the world right now," he said.
International credit ratings agency Standard and Poor's expressed similar sentiments in the wake of the China Aviation Oil fiasco.
"The current financial difficulties of China Aviation Oil ... highlight the risks surrounding many China-based and China-related corporates as a result of limited transparency," Standard and Poor's said in a statement on Friday.
Standard and Poor's said it had been misled when it assessed China Aviation Oil as having a "moderate financial profile" in a survey on "China's top 100 corporates" released in October.
"Had information about the losses been available in October, when they occurred, Standard and Poor's opinion on the credit profile of CAOS (China Aviation Oil) would have been even lower," it said.
"CAOS' situation lends credence to Standard and Poor's previously expressed view that complex corporate structures and unreliable accounting practices make it difficult to perform substantive analysis on some China-related companies in the survey.
"On the accounting side, the problem of limited disclosure is compounded with problems of compliance."
Broadfoot said the risk for foreign investors and stock exchanges to become caught in Chinese financial webs was increasing as more and more firms from China looked to raise capital by listing overseas.
As in Hong Kong and elsewhere around the globe, the Singapore Exchange has actively sought Chinese firms to list with it and its safeguards have come under question over the China Aviation Oil fiasco.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source