Singapore: CAO’s flame is rekindled


Chris Leahy
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China Aviation Oil (Singapore) Corporation (CAO) the Singapore-listed subsidiary of mainland Chinese aviation fuel importer China Aviation Oil Holding Company (CAOH) announced in December a successful debt restructuring including significant investments from BP Investments Asia and Temasek Holdings.

CAO collapsed under losses of more than $500 million in November 2004 after a disastrous trading strategy in derivatives and an attempt to cover up losses by previous management. The collapse caused outrage since it occurred weeks after a share placement by CAOH before which CAO management had informed CAOH of the losses.


The debt restructuring deal entails the injection of $130 million of new capital by CAOH ($75.77 million), BP Investments Asia ($44 million) and Temasek ($10.23 million) as well as an additional $30 million of cash raised from the sale of existing assets. Creditors other than CAOH will receive cash repayments totalling $130 million, with the balance being termed out over five years.

The Singapore authorities have ensured that CAOH atones for the sins of its errant Singapore subsidiary. In addition to guaranteeing CAO’s new termed-out indebtedness, CAOH will waive almost all of its outstanding shareholder loans and all dividends due from CAO in return for an allotment of just 29.881 million new shares, valued at $9.1 million. Under the terms of a settlement between CAOH and the Monetary Authority of Singapore, CAOH will give almost 91% of these shares ex-gratia to existing non-interested shareholders.


The deal looks like a good result for both creditors and shareholders given the parlous financial position of CAO before the restructuring. Although CAOH will remain a 51% shareholder in CAO after the restructuring, BP Investments Asia will hold 20% and Temasek 4.65% in the restructured company. Creditors take 10% and existing minority shareholders the balance of 14.35%. The entire company is valued at $220 million.

CAO and BP Investments Asia have entered into various agreements, including a business cooperation agreement between BP Singapore and CAO under which BP will provide CAO with trading expertise and staff to enhance trading and risk management systems. That should provide shareholders and the authorities with some comfort at least.