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 CAO'S collaspe (The second biggest loser is a Japanese bank, third one are German investors) |
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dejavu
头衔: 海归少校
声望: 学员
加入时间: 2004/02/20
文章: 148
海归分: 24311
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作者：dejavu 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
Suspended CEO Tells Court
China-Based Parent Knew
Of Unit's Woes in October
By CRIS PRYSTAY in Singapore and DARREN MCDERMOTT and LAURA SANTINI in Hong Kong
Staff Reporters of THE WALL STREET JOURNAL
December 3, 2004
A Chinese state-owned company incurred one of the biggest derivatives losses in years by repeatedly doubling down on a chronically losing bet against rising oil prices over the past year, senior executives said in court documents.
China Aviation Oil (Singapore) Corp., an overseas arm of China's main jet-fuel supplier, revealed this week that it has racked up about $550 million in trading-related losses. Records show that creditors who have pushed for repayments in recent weeks include: Mitsui & Co., which has billed CAO for $143.6 million; Fortis Bank, which is demanding $33.1 million; and Goldman Sachs Group's oil-trading outfit, which has sought as much as $15.9 million, though some of that has been repaid.
The court documents, filed in connection with the creditors' actions, show that CAO Singapore began speculative trading in derivatives just a year ago, and in the first quarter had a loss of just $5.8 million on trades. But instead of taking that loss, the firm, run by a Chinese-born chief executive, Chen Jiulin, gambled it could trade its way out of the hole, and so made new bets that oil prices would fall -- wrongly, as it turned out.
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"The company decided to move back the positions on the trades in an effort to ride through the upward-trending oil market," Mr. Chen said in an affidavit that was filed along with other records in Singapore's High Court on Monday as part of a company petition seeking protection from creditors.
As a result, by Nov. 25 the company had blown through all its cash and all its bank loans and still faced hundreds of millions of dollars in trading losses. Meanwhile, partners in its derivatives trades had requested payments totaling $247.5 million. The company also owed $160 million on a syndicated loan it took out last year.
Ironically, oil prices have fallen steeply this week, with Nymex crude closing yesterday at $43.25, its lowest level in nearly three months. (See related article.) CAO Singapore could benefit from that drop on positions which it hasn't closed out. But on the majority of trades, one trader said, the company "pulled the plug two days before the market has utterly collapsed. They would have made back a lot of money."
A spokesman for CAO Singapore's parent company, China Aviation Oil Holdings Cop., declined to comment. Mr. Chen also has declined to comment.
The scandal has thrown the fate of CAO Singapore into turmoil and rocked oil traders across the region, in part because it stokes doubts about China's corporate governance. Beijing-based CAO Holdings is owned by the Chinese government and holds a monopoly on domestic jet-fuel sales. Under Chinese law, it isn't obligated to pay off CAO Singapore's debts. But some investors and bankers warn that a failure to step up could undermine confidence in dozens of similar Chinese institutions that have links to the government but no explicit state backing.
Moreover, Mr. Chen's affidavit also reveals an unusual transaction by CAO Holdings that underscores the weak corporate-disclosure standards of Chinese companies. CAO Holdings, which until recently owned 75% of CAO Singapore, sold a 15% stake to institutional investors on Oct. 20, raising slightly more than $100 million. Mr. Chen said in his affidavit the parent knew of the problems at its Singapore unit at the time. But it didn't disclose them to investors at the time. (See related article.)
People familiar with the matter said the mess also highlights bad risk management by some Japanese banks that have been seeking a bigger toehold in oil trading. Japan's Mitsui is by far the biggest creditor.
By contrast, Goldman Sachs, though a money loser, kept CAO Singapore on a relatively short leash, the court documents show. Its J. Aron & Co. subsidiary allowed CAO Singapore only $5 million in unsecured credit and demanded collateral along the way as trades soured. As of Nov. 22, J. Aron had $79 million of collateral on hand to cover $87.4 million in trades.
CAO Singapore is seeking to hold off creditors while it formulates a restructuring plan. A four-member team from its parent company is in Singapore, but Mr. Chen, who has been suspended, has returned to China. The Singapore Exchange has called for Mr. Chen to return to help with the investigation, and hired PricewaterhouseCoopers to probe the affair.
In another development that has made creditors nervous, a turnaround effort that CAO Holdings is proposing would have it and the Singapore government's investment arm, Temasek Holdings Pte. Ltd., put $50 million apiece into CAO Singapore. Temasek says it is seriously considering the plan, but it would only go forward if CAO Singapore can first reach an agreement with its creditors. Some worry privately that they will agree to settle for less -- and only then will Beijing infuse more cash into the company.
CAO Singapore, which holds a monopoly on purchasing Chinese jet-fuel imports, turned small profits over the the past several years, but Mr. Chen, 43 years old, wanted more. So the company branched out, first making a string of oil-industry acquisitions, then entering trading "in order to maximize" its profit, the company says on its Web site.
Dipping its toe into derivatives, it entered into options contracts -- complicated transactions which confer the right to buy or sell an instrument at a set price at a specified date -- that corresponded to two million barrels of oil, Mr. Chen said in his affidavit. Encouraged by its profit on the trade, it delved deeper.
But rising oil prices early this year reversed its fortunes. Rather than face up to a loss, the company doubled up "in the hope that the oil market would trend downwards," Mr. Chen said in his affidavit.
Playing for bigger stakes, the company found itself facing steeper losses as oil prices rose. By the second quarter, potential losses were $35.8 million. But, Mr. Chen said, because the losses "would have [had] an adverse impact on the company, the company proceeded to move back the positions again, to 2005 and 2006, and further increased the volume of barrels being transacted."
By October, just as crude-oil prices hit a high, the company had positions on 52 million barrels of oil -- up from only two million a year earlier, the documents show. To meet margin calls and juggle its derivative deals, it had gone through almost $26 million of its working capital, most of a $160 million syndicated loan that was intended for acquisitions and $68 million from the proceeds of its trade receivables.
In one example of a money-losing trade, CAO Singapore entered into a derivative agreement on Sept. 1 that involved 100,000 barrels of jet fuel. Under the contract, with Goldman's J. Aron, CAO Singapore essentially placed a bet that the average monthly spot price for Singapore-traded jet-fuel oil wouldn't rise above $37 a barrel during October. The contract gave J. Aron the right to demand from CAO Singapore the difference between $37 a barrel and the actual average monthly spot price in October.
The trade backfired badly. During the life of the option, fuel prices rose to an average price of $61.25. CAO thus suffered a loss of $24.25 per barrel, or $2.4 million in total.
On Nov. 3, J. Aron billed CAO Singapore for that much as part of an invoice totaling $12.4 million in losses on five separate trades. When China Aviation failed to pay, J. Aron's tone turned less polite. "Aron hereby demands that ... China Aviation pay to Aron the required payment amount," read a Nov. 16 follow-up.
Meanwhile, other trading partners were discovering that CAO Singapore was in trouble. Growing increasingly desperate, the company's deputy trading head, Gerard Rigby, tried to unload contracts involving 1.5 million barrels of oil with Barclays Capital in a late-night conference call on Oct. 28. According to a summary that Barclays provided CAO Singapore in a letter, Barclays agreed to terminate the contracts -- provided China Aviation pay $26.5 million in closing fees.
With its bills mounting and its options running out, the company informed its Beijing parent of its predicament on Oct. 10. To raise money to meet bankers' demands, the parent company sped up its plans to sell the 15% stake in CAO Singapore. It originally had been planned for the end of this year to raise funds for strategic investments, Mr. Chen said in his affidavit. But neither CAO Singapore nor its parent informed investors of the losses at the time.
The sale of the stake, handled by Deutsche Bank, raised $108 million in proceeds. The parent gave the money to the Singapore company as a loan to meet creditors' demands. Deutsche Bank says that as underwriter of a private sale, it wasn't required to conduct the same due diligence as it would with public stock offerings. Mike West, a Deutsche Bank spokesman, said CAO Holdings' transaction was executed "in accordance with market practice."
In any event, the loan to CAO Singapore from its parent wasn't enough to cover its growing commitments, and creditors began forcing the company to close its derivative contracts. Losses spiraled from $132 million on Oct. 26 to $381 million on Nov. 25 as more than a half-dozen banks shut down the trading of CAO Singapore.
The company said it has received letters from bankers seeking payment totaling $247 million. Besides Mitsui, Fortis and J. Aron, Barclays Capital is seeking $26.4 million, Sumitomo Mitsui Banking Ltd. is demanding $11.3 million and Macquarie Bank has asked for $2.6 million, according to the affidavit.
Representatives of Fortis and Sumitomo Mitsui Bank declined to comment on the matter. Executives at other banks couldn't be reached.
A Goldman spokesman said the firm has lowered its exposure considerably in recent weeks. "Our overall exposure is well below $10 million," the spokesman said.
One threat to CAO Singapore's prospects comes from Standard Bank London Ltd., which is owed $14.4 million. It has filed a statutory demand through Singapore's courts that effectively could force the company into insolvency if it can't repay the bank by Dec. 9. A bank spokesman declined to comment.
作者：dejavu 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 CAO'S collaspe (The second biggest loser is a Japanese bank, third one are German investors) -- dejavu - (10618 Byte) 2004-12-03 周五, 10:46 (921 reads)
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