'No blank cheque' for Singapore oil firm

The Beijing-based parent company of crisis-hit China Aviation Oil (Singapore) has refused to provide unconditional support to its troubled subsidiary, urging creditors to have realistic expectations.

The Asian Wall Street Journal said the former head of China Aviation Oil had expected a bail-out from the company’s parent, state-linked China Aviation Oil Holding Company, as losses mounted from betting on the future price of oil.

Chen Jiulin, the ex-chief of China Aviation Oil, was arrested last week and questioned by police after the company reported it lost €441.5m from speculative oil trades. He was released on bail without charge.

China Aviation Oil sought court protection from its creditors and last Friday a court gave it six weeks to craft a restructuring plan.

The scandal is the latest of several to hit the Chinese corporate world as companies with little experience in foreign markets expand their presence abroad.

Jia Changbin, president of China Aviation Oil Holding – CAOHC – expressed regret for the losses its Singapore-listed subsidiary inflicted on minority shareholders, but said as a commercial entity and a Chinese state-owned enterprise responsible for a critical function in the economy, CAOHC was “not in a position to pledge unconditional support” for a restructuring plan.

He said support from the parent company depended upon creditors’ acceptance of the restructuring plan, as well as resolution of legal and regulatory issues that would allow the Singapore subsidiary to resume normal business.

“CAOHC will endeavour to work with CAO to structure a compromise which is acceptable to new investors, creditors and shareholders alike,” Jia said.

“CAOHC entreats all interested parties to be realistic in their expectations and to engage in the process in a timely and progressive manner.”

Court documents showed that China Aviation Oil, the main supplier of jet fuel in China, had received claims amounting to €198.4m from more than half a dozen creditors and owes a dozen banks €121.6m.

The documents also quoted Chen as saying CAOHC knew about the mounting losses when it sold a 15% stake in China Aviation Oil for €86.9m on October 20.