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Tue, Dec 07, 2004 - Page 12 News List

China Aviation Oil head agrees to face questioning


The suspended head of a major supplier of jet fuel to China, under investigation for overseeing hundreds of millions of dollars in derivatives trading losses, has agreed to return to Singapore to face investigators, the company said yesterday.

The Singapore Exchange and central bank said on Friday that China Aviation Oil (Singapore) Corp (中國航油) was under investigation by the Commercial Affairs Department, which investigates white-collar crime. China Aviation Oil is listed in Singapore.

The Singapore-based firm stunned investors and markets regulators last week, when it acknowledged racking up huge losses after speculative bets on energy markets turned sour.

At around the time of the announcement, CEO Chen Jiulin (陳久霖) left for China.

He subsequently apologized to investors, according to a local media report.

The Singapore Exchange had asked China Aviation Oil to persuade Chen to return to Singapore.

"Mr. Chen has informed the company that he will return to Singapore sometime this week," the company said in a statement, adding that the former CEO went to China on Nov. 30 "to attend to family matters."

Still Doing Business

The company has said it is continuing to do business despite a criminal investigation of its US$550 million in losses on derivative trading.

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.

China Aviation Oil announced the losses late Tuesday and said it was seeking court protection from creditors.

Trading of its shares had been suspended Nov. 29. The company is controlled by state-owned China Aviation Oil Holding Co.

Court documents in Singapore said the Chinese parent company, was aware of the financial problems when on Oct. 20 it sold a 15 percent stake in the troubled supplier for US$108 million. According to an affidavit signed by Chen, his company notified its parent group of its troubles on Oct. 10.

The parent reduced its exposure to the losses by selling a block of 15 percent of the shares it owned in the Singapore operation on Oct. 20 to Deutsche Bank, which immediately resold the stake to more than 50 investors, mostly Asian hedge funds, for US$108 million.

Deutsche Bank Responds

Deutsche Bank said on Sunday that it had been assured of the company's fiscal health.

So-called block trades like this one exist in a legal twilight in Singapore. There are fewer legal requirements for full financial disclosure than for an initial or secondary public stock offering.

But securities lawyers said that Singapore law did require a controlling shareholder to disclose material information before disposing of such a large block of stock, even through a block trade.

Michael West, Deutsche Bank's director of communications for Asia and the Pacific, said on the sidelines of the World Economic Forum's India Economic Summit here on Sunday that the bank had asked questions of China Aviation Oil Holdings before handling the transaction.

"The diligence conducted by Deutsche Bank included questioning of the company's financial situation and whether there were any issues current or pending that could have a material adverse impact on the business or its financial condition," West said.

"The answers provided gave us confidence to proceed with the placement," he said.

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