Media Releases
Published Date: 16 December 2004

China Aviation Oil (Singapore)

Singapore 16 December 2004...The Monetary Authority of Singapore (MAS) notes the strong media and market interest in the events following the announcement by China Aviation Oil (Singapore) Corporation Limited (CAO) on 30 November 2004 of significant losses from speculative oil derivative trading.  MAS considers it in the public interest to provide an update on current developments and the steps being taken by the relevant authorities.

2   On 10 December 2004, CAO announced that the High Court of Singapore had granted CAO's application for a six-week extension to 21 January 2005 to file a copy of the proposed Scheme of Arrangement, a list of creditors and their debts, and a proposed time and place for a creditors meeting.  

Current developments on CAO restructuring

3   CAO undertook (in its announcement of 30 November 2004) that any cash that it received from its receivables and assets as at 30 November 2004 would be utilised solely to continue CAO's core business and daily operations in order to preserve shareholder value until a settlement is reached. In granting the six-week extension, the High Court ordered CAO to announce over SGXNET at least 24 hours before any change, should CAO no longer be able to comply with this undertaking.

4   CAO announced (on 8 December 2004) that it had put in place additional control mechanisms, including the appointment of two representatives from Deloitte & Touche Financial Advisory Services Pte Ltd to be co-signatories to CAO's bank accounts to control the outflow of cash.

5   MAS notes the statement on 14 December 2004 by Mr Jia Changbin, Chairman of CAO and President of China Aviation Oil Holding Company (CAOHC), the parent company of CAO, that "notwithstanding the losses suffered by CAOHC together with all other shareholders, CAOHC wishes to assure the shareholders that it will provide moral, management and financial support to CAO to ensure that CAO can resume jet fuel procurement activities as soon as practicable while CAO puts together its restructuring plan".

6.  MAS welcomes this statement of support and urges CAOHC, and all other relevant parties, to continue with their efforts to restructure CAO in the interest of all stakeholders, including CAO minority shareholders. 

Actions taken by relevant authorities

7   The Singapore authorities are conducting a thorough investigation into the circumstances leading to the losses at CAO. Appropriate enforcement actions will be taken if any laws or regulations are found to have been breached. 

8   After CAO announced its trading losses on 30 November 2004, MAS and SGX immediately assessed if the losses posed risks to other market participants or could disrupt the orderly operation of the market. MAS and SGX concluded that while the losses incurred were large, they did not pose any systemic concerns for the market or to financial institutions operating in Singapore.

9   SGX also directed CAO to appoint PricewaterhouseCoopers (PwC) as special auditor under Listing Rule 704 (12) to investigate, inter alia, into the circumstances leading to the losses at CAO, the internal controls, risk management and governance practices of CAO, and to report its findings to the Exchange. 

10   The Commercial Affairs Department (CAD) is undertaking criminal investigations.  CAD's investigations will look into possible breaches of relevant criminal law provisions under the Securities and Futures Act (SFA), the Companies Act and the Penal Code by all relevant persons and entities.

11   MAS notes the statement by Mr Jia Changbin on 14 December 2004 that "CAOHC has, and will, provide full co-operation to the investigating parties to enable the investigations to be completed expeditiously.  CAOHC will also continue to encourage CAO to provide the same level of co-operation to the investigating parties."  MAS looks to CAOHC, CAO and all relevant persons and entities to fully co-operate with the current investigations by the Singapore authorities.

Next Steps

12   PwC's investigations as special auditor are currently progressing in the following areas:

i)  the circumstances giving rise to the substantial losses from trading in oil derivatives by CAO;

ii)  whether all trading losses have been properly accounted for in accordance with generally accepted accounting principles;

iii)  the circumstances leading up to the failure by CAO to disclose to the market its trading losses on a timely basis;

iv)  the circumstances and reasons for any failures in internal and financial controls, risk management, and corporate governance; and

v)  the roles and responsibilities of all relevant persons and entities.

13   Potential breaches of the law identified as a result of PwC's investigation as a special auditor will be referred to CAD for investigation.

Regulatory responses

14   Singapore's regulatory regime was strengthened under the SFA introduced in 2002. Disclosure, accounting and corporate governance rules have been strengthened across the board1 in line with practices in other leading financial centres.

15   It is premature to determine if we need further regulatory changes as a result of the CAO case.  When the findings from the relevant investigations are clear, MAS will work with SGX, the Accounting and Corporate Regulatory Authority (ACRA), the Council on Corporate Disclosure and Governance (CCDG) and other relevant agencies to review the need for any changes in laws, regulations and standards of corporate governance and market conduct.

16   Mr Shane Tregillis, Assistant Managing Director (Market Conduct), MAS said "The CAO case is being thoroughly investigated. Once we have the results of the current reviews and investigations, MAS will work with the other agencies to review them carefully and consider whether we need to add new rules or tighten existing ones."

17   Mr Tregillis added, "However, no amount of regulation or enforcement can guarantee that companies will always comply with disclosure rules and corporate governance standards, whether in Singapore or any other financial centre."


1 Some key enhancements include:
i. Making continuous disclosure of material information by listed companies a statutory requirement under SFA;
ii. Extending statutory obligations to underwriters for statements that they make in prospectuses for public offers;
iii. Introducing the new Accountants Act in April 2004 to strengthen the regulatory framework, including  introducing  the Public Accountants Oversight Committee with powers to take disciplinary actions against public accountants;  
iv. Requiring companies in Singapore  to adhere to Singapore Financial Reporting Standards, which are largely aligned with international accounting standards issued by the International Accounting Standards Board; and
v. Requiring all SGX-listed companies to describe their corporate governance practices and explain deviations from the Code of Corporate Governance.