Chinese Oil Trader Loses $550M In Derivatives.
The Singapore-listed China Aviation Oil (Singapore) Corp., sourcing jet fuel for China, has lost $550m in trading in oil derivatives, triggering concern over other China-linked stocks. The losses, announced on Nov. 30 in a statement to the Singapore Exchange “SGX” redirects here. For other uses, see SGX (disambiguation).
Singapore Exchange Limited SGX: S68 (SGX) is the stock exchange in Singapore.
SGX was formed on December 1 1999, following the merger of two established and well-respected financial , equal the company's market capitalisation Noun 1. market capitalisation - an estimation of the value of a business that is obtained by multiplying the number of shares outstanding by the current price of a share
market capitalization of $549m, raising serious questions about its future. (This is the largest amount a company in Singapore has lost by betting on derivatives since rogue Rogue, river, c.200 mi (320 km) long, rising in SW Oreg., in the Cascade Range N of Crater Lake. It flows southwest and west through a fertile valley (noted for its orchard fruits) and then across the Coast Range to the Pacific Ocean at Gold Beach. British trader Nick Leeson Nicholas Leeson (born February 25, 1967) is a former derivatives trader whose unsupervised speculative trading caused the collapse of Barings Bank, the United Kingdom's oldest investment bank. Rise
Leeson was born in Watford, north-west of London. bankrupted Barings Investment Bank when he blew more than $1 bn in the 1990s after getting the bond market wrong).
In its statement, China Aviation Oil said its high-flying CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Chen Jiulin had been suspended sus·pend
v. sus·pend·ed, sus·pend·ing, sus·pends
1. To bar for a period from a privilege, office, or position, usually as a punishment: suspend a student from school. from duty pending an independent audit of the firm's losses by PriceWaterhouseCoopers. The company said it had also sought help from Singapore's High Court to work out a repayment scheme with its creditors. Its Chinese government-owned parent, China Aviation Oil Holding Co., established a task force to oversee its daily operations.
China Aviation Oil admitted the huge losses came through "speculative oil derivative trading", blaming the situation on record high oil prices in October, which it called wrong, expecting them to fall instead of rise. It said: "As the prices of crude oil were at an all time high at above 55 US dollars per barrel, the company faced significant margin calls on its open positions and did not have the resources to satisfy the margin calls". To help cope with the situation, China Aviation Oil turned to its parent firm, which provided an emergency loan of $100m, but that proved to be too little, too late. It said: "This loan quickly proved to be insufficient to satisfy the company's requirements ... a more complete rescue proposal would be required".
Derivatives allow an investor to take what can be a highly leveraged position in an underlying security or asset based on its likely price in the future. If the market behaves as expected, the returns can be spectuclar, as can be the losses if it does not. The losses incurred by the company reflected the poor level of corporate governance Corporate Governance
The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. within its top management. Ong Eng Tong tong 1
tr.v. tonged, tong·ing, tongs
To seize, hold, or manipulate with tongs.
[Back-formation from tongs. , an independent oil consultant with almost 40 years of industry experience, said the sorry state of the company exposed its lack of management control. China Aviation Oil, formerly regarded as one of the leading Chinese firms to list in Singapore, supplies one third of China's jet fuel needs and has a monopoly on such imports into the mainland.
The fallout fallout, minute particles of radioactive material produced by nuclear explosions (see atomic bomb; hydrogen bomb; Chernobyl) or by discharge from nuclear-power or atomic installations and scattered throughout the earth's atmosphere by winds and convection currents. from the disaster at China Aviation Oil was being felt in the subsequent days by other mainland firms which are publicly traded in Singapore. Most Chinese-listed stocks took a beating as investors bailed out on worries about their level of corporate governance. In morning trade on Dec. 1, several Chinese stocks were among the top 40 losers on the Singapore exchange. Among them were China Petrotech, which fell 5.16% to 46 Singapore cents, and Hongguo International, which lost 4.55% to 21 cents.