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Singapore Oil Company Chief Arrested in Trading Losses
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By WAYNE ARNOLD
Published: December 9, 2004
Photo: Chen Jiulin, chief of China Aviation Oil Singapore, left, was released after being arrested and questioned yesterday in a securities inquiry. (Photo by Lianhe Zaobao/Reuters)
Police arrested the chief executive of China Aviation Oil Singapore yesterday morning as he returned to Singapore from China to face questions and a lawsuit related to his company's $550 million in losses from derivatives trading.
Chen Jiulin, chief executive of the company, the Singapore subsidiary of China Aviation Holdings in Beijing, has yet to be charged with any crime. The Commercial Affairs Department in Singapore said it was questioning him at its headquarters as part of its investigation into possible violations of Singapore's securities and futures regulations. China Aviation later issued a statement saying that Mr. Chen had been released.
Once a luminary in Singapore's mainland Chinese business community, Mr. Chen, 43, left Singapore last week, a day after his company announced that its derivatives-trading losses had forced it into insolvency and that he had been suspended as chief executive. Upon opening its own investigation, Singapore's securities exchange asked Mr. Chen to return to assist in the inquiry. A company spokesman said Mr. Chen had gone to China to visit his sick mother.
Investors are demanding to know how the company, which has a virtual monopoly on importing jet fuel to China, lost so much money so quickly and why executives at the company and its controlling shareholder, the government-owned China Aviation Holdings Company, waited a while to tell them.
Officials in Singapore have already said that the city-state's reputation as a financial center is at stake in the investigation. Lawyers said they expected investigators to file charges, if any, within days. Singapore has not witnessed such a high-profile securities scandal since 1995, when Nicholas W. Leeson fled the island after losing $1.2 billion at Barings Bank.
Four other China Aviation executives surrendered their passports to police pending the results of the investigations. Among them were Gerald Rigby, a former executive at ChevronTexaco's Caltex unit who heads China Aviation's jet fuel procurement division, and Abdallah Kharma, a British-educated oil industry veteran who was in charge of trading other products, including derivatives.
Also yesterday, a group of Indonesian investors filed a lawsuit against China Aviation and China Aviation Oil Holding, accusing them of violating terms of an agreement under which China Aviation was to buy shares the investors held in the local refiner, Singapore Petroleum. China Aviation agreed in September to buy the shares for 362.2 million Singapore dollars ($220 million). But the day after its revelation about its derivatives loss, China Aviation announced that its shareholders had rejected the deal.
China Aviation has asked Singapore's High Court to grant it a six-week extension to the deadline for filing details of its restructuring plan, which it has been discussing with China Aviation Oil Holding and the investment arm of Singapore's government, Temasek Holdings. The court is due to hear its application on Friday.
''The process takes some time to come up with a scheme of arrangement, so more time is needed to come up with the thing and present it to creditors,'' said Gerald Woon, a spokesman for China Aviation Oil.
Auditors from PricewaterhouseCoopers, meanwhile, are already going through China Aviation's records on behalf of the Singapore Exchange to determine what went wrong. The company had told analysts that it had a risk-management system in place that should have prevented losses of such magnitude.
Any trade that produced a loss of at least $200,000 had to be reported to a committee monitoring risk, and any position with an unrealized loss of $350,000 or more had to be closed, meaning in most cases that the trader would have to sell the unprofitable security before its value deteriorated any further -- unless Mr. Chen gave his direct permission not to. Any trades producing $500,000 or more in losses had to be closed with no exceptions.
In an affidavit filed to the High Court last week, Mr. Chen said the company had informed China Aviation Oil Holding of its problems on Oct. 10. China Aviation Oil Holding then sold 15 percent of the company in a block trade to Deutsche Bank in Singapore, which then sold the shares on immediately to hedge fund managers.
Earlier this week, Deutsche Bank defended the trade, saying it had been conducted in accordance with market regulations and that China Aviation Oil Holding had assured it of its subsidiary's financial health.
In his affidavit to the High Court, Mr. Chen said that China Aviation Oil had received claims from creditors demanding a total of $247.5 million, including $143.6 million from Mitsui & Company Energy Risk Management and $15.4 million from Goldman Sachs. But both companies said this week that China Aviation Oil had paid back most of what it owed them.
In the meantime, China Aviation has subcontracted other companies from China to purchase and import the country's jet fuel, Mr. Woon said. In its statement, the company said it was planning to set up a new subsidiary to take responsibility for the business. Financed by China Aviation Oil Holding in Beijing, the new subsidiary would rent out China Aviation's facilities and personnel, the statement said.
Singapore Oil Company Chief Arrested in Trading Losses
o
By WAYNE ARNOLD
Published: December 9, 2004
Photo: Chen Jiulin, chief of China Aviation Oil Singapore, left, was released after being arrested and questioned yesterday in a securities inquiry. (Photo by Lianhe Zaobao/Reuters)
Police arrested the chief executive of China Aviation Oil Singapore yesterday morning as he returned to Singapore from China to face questions and a lawsuit related to his company's $550 million in losses from derivatives trading.
Chen Jiulin, chief executive of the company, the Singapore subsidiary of China Aviation Holdings in Beijing, has yet to be charged with any crime. The Commercial Affairs Department in Singapore said it was questioning him at its headquarters as part of its investigation into possible violations of Singapore's securities and futures regulations. China Aviation later issued a statement saying that Mr. Chen had been released.
Once a luminary in Singapore's mainland Chinese business community, Mr. Chen, 43, left Singapore last week, a day after his company announced that its derivatives-trading losses had forced it into insolvency and that he had been suspended as chief executive. Upon opening its own investigation, Singapore's securities exchange asked Mr. Chen to return to assist in the inquiry. A company spokesman said Mr. Chen had gone to China to visit his sick mother.
Investors are demanding to know how the company, which has a virtual monopoly on importing jet fuel to China, lost so much money so quickly and why executives at the company and its controlling shareholder, the government-owned China Aviation Holdings Company, waited a while to tell them.
Officials in Singapore have already said that the city-state's reputation as a financial center is at stake in the investigation. Lawyers said they expected investigators to file charges, if any, within days. Singapore has not witnessed such a high-profile securities scandal since 1995, when Nicholas W. Leeson fled the island after losing $1.2 billion at Barings Bank.
Four other China Aviation executives surrendered their passports to police pending the results of the investigations. Among them were Gerald Rigby, a former executive at ChevronTexaco's Caltex unit who heads China Aviation's jet fuel procurement division, and Abdallah Kharma, a British-educated oil industry veteran who was in charge of trading other products, including derivatives.
Also yesterday, a group of Indonesian investors filed a lawsuit against China Aviation and China Aviation Oil Holding, accusing them of violating terms of an agreement under which China Aviation was to buy shares the investors held in the local refiner, Singapore Petroleum. China Aviation agreed in September to buy the shares for 362.2 million Singapore dollars ($220 million). But the day after its revelation about its derivatives loss, China Aviation announced that its shareholders had rejected the deal.
China Aviation has asked Singapore's High Court to grant it a six-week extension to the deadline for filing details of its restructuring plan, which it has been discussing with China Aviation Oil Holding and the investment arm of Singapore's government, Temasek Holdings. The court is due to hear its application on Friday.
''The process takes some time to come up with a scheme of arrangement, so more time is needed to come up with the thing and present it to creditors,'' said Gerald Woon, a spokesman for China Aviation Oil.
Auditors from PricewaterhouseCoopers, meanwhile, are already going through China Aviation's records on behalf of the Singapore Exchange to determine what went wrong. The company had told analysts that it had a risk-management system in place that should have prevented losses of such magnitude.
Any trade that produced a loss of at least $200,000 had to be reported to a committee monitoring risk, and any position with an unrealized loss of $350,000 or more had to be closed, meaning in most cases that the trader would have to sell the unprofitable security before its value deteriorated any further -- unless Mr. Chen gave his direct permission not to. Any trades producing $500,000 or more in losses had to be closed with no exceptions.
In an affidavit filed to the High Court last week, Mr. Chen said the company had informed China Aviation Oil Holding of its problems on Oct. 10. China Aviation Oil Holding then sold 15 percent of the company in a block trade to Deutsche Bank in Singapore, which then sold the shares on immediately to hedge fund managers.
Earlier this week, Deutsche Bank defended the trade, saying it had been conducted in accordance with market regulations and that China Aviation Oil Holding had assured it of its subsidiary's financial health.
In his affidavit to the High Court, Mr. Chen said that China Aviation Oil had received claims from creditors demanding a total of $247.5 million, including $143.6 million from Mitsui & Company Energy Risk Management and $15.4 million from Goldman Sachs. But both companies said this week that China Aviation Oil had paid back most of what it owed them.
In the meantime, China Aviation has subcontracted other companies from China to purchase and import the country's jet fuel, Mr. Woon said. In its statement, the company said it was planning to set up a new subsidiary to take responsibility for the business. Financed by China Aviation Oil Holding in Beijing, the new subsidiary would rent out China Aviation's facilities and personnel, the statement said.
