Oil firm losses shocks Singapore stock market

Singapore financial markets were rocked today after a Chinese jet-fuel supplier listed in the city-state said it had racked up €438m in losses on derivative trades and was seeking protection from its creditors.

China Aviation Oil, whose shares have been suspended since Monday morning, said in a statement that it had accepted a €797.4m emergency loan from its parent company, China Aviation Oil Holding Co, to shore up its balance sheet.

Its chief executive, Chen Jiulin, had been suspended, the company statement said, while accounting firm PricewaterhouseCoopers investigated what went wrong.

The scandal could the biggest case of losses from speculative trading to hit Singapore since trader Nick Leeson rung up around €1bn in losses that eventually led to the collapse of Britain’s Barings Bank in 1995.

The Singapore government has worked tirelessly over the past three decades to promote the tiny country as a well-regulated regional financial centre. Like its regional competitors, the Singapore stock exchange has also courted mainland companies to get them to list their shares in the country.

China Aviation Oil’s statement said: “The company has suffered significant losses from speculative oil derivative trading,” estimating that they totalled €438.3.

Derivatives are complex financial instruments that allow the holder to make a bet about the likely movement of an asset such as oil, other commodities, currencies or stock markets. They are often used by companies to manage risk, but are also favoured tools for speculative trading with potential for huge payoffs or losses.

The Singapore Exchange moved swiftly to limit the potential fallout from China Aviation Oil’s woes, vowing that through the PricewaterhouseCoopers’ probe it would ”get to the bottom of the matter as soon as possible.”

The exchange added, in a statement, that investors should not regard China Aviation Oil’s problems as being indicative of troubles at other companies.

“The market should consider each company, be it local or foreign, on its own merits,” said Yeo Lian Sim, the exchange’s head of risk management and regulation.