3 December 2004
Red opportunity makes Singapore complacent again
Eric Ellis in Singapore
THE name Chen Jiulin doesn't roll off the Western tongue in quite the same manner as Nick Leeson but many Singaporeans see awkward parallels. For the tiny South-East Asian financial centre, the China Aviation Oil scandal gives an uncomfortable sense of deja vu.
Ten years after Leeson brought down the house of Baring with billions of dollars of bad stock market calls, Singapore is reeling from what seems another ugly case of "rogue trader". Where Leeson tried to hotfoot it back to London before his arrest in Frankfurt, Mr Chen, 43, left with his wife to his home in China, leaving regulators, creditors and investigators to wade through the $550 million (Pounds 285 million) mess he left behind.
It was the Baring scandal of January 1995 that ushered in unprecented levels of regulation and policing of Singapore's financial markets. While the China Aviation collapse is not quite on the same scale as Leeson's shenanigans -at least not yet -unregulated trading of this scale was thought to have been banished from Singapore, which touts itself as enjoying world's best practices of corporate governance.
But as China transforms itself into what could soon be the world's biggest economy, Singapore has been desperate to court the country's so-called "red chip" emerging companies and cash them in on the local bourse, instead of the more logical destination in Hong Kong, Asia's premier financial centre.
Singapore has become obsessed about profiting from communist China's transition to capitalism. The Government is frequently exhorting its molly-coddled business sector to go to China, while promoting a vigorous "Speak Mandarin" campaign among its four million subjects, even though most of its Chinese community prefer to speak their various regional dialects (and its net-savvy youth English).
In the 1990s, there was even an unspectacular government effort to create another Singapore in China itself. Bolstered by billions in state investment, it never took off and is now very rarely mentioned, regarded as an embarrassing failed experiment.
The lure of China comes as economic pickings have been relatively lean in Singapore and South-East Asia generally since the financial crisis of the mid-1990s. The economy of neighbouring Indonesia virtually collapsed. Singapore's other stricken neighbour, Malaysia, chose to isolate itself after the crisis.
Neither neighbour's economy has fully recovered, as Singapore faces competition from fast-emerging financial centres in Bombay and Dubai. Financial services comprise about 12 per cent of Singapore's $90 billion economy, and its stock market is known regionally as being one of Asia's more staid.
No longer. Instead of "red chips", for Singapore Inc it's red faces all round.
I've come to explain, says oil chief as he
is arrested
Eric Ellis in Singapore
9 December 2004
The Times
THE mainland Chinese executive at the centre of Singapore's biggest rogue trading scandal since Nick Leeson brought down Barings Bank in 1995 was yesterday arrested by the island's commercial crimes police unit.
Chen Jiulin, 43, chief executive of Beijing-controlled China Aviation Oil, the company at the centre of the storm, was arrested by police immediately after arrival in the city-state. Mr Chen, the former darling of Singapore investors after shares in China Aviation had tripled since its 2001 listing, has spent the past week in self-imposed exile in China, after fleeing home when the Singapore-listed company admitted to losing about $550 million (Pounds 283 million) in unauthorised wrong-way bets in the Singapore oil market. The China Aviation group is the monopoly supplier of jet fuel to China.
"I have come to explain," Mr Chen told reporters soon after landing at Singapore's Changi Airport. "I have an obligation and responsibility to do so."
A Singapore police spokesperson said that Mr Chen is being investigated for possible offences under the country's securities and futures laws. The Commercial Affairs Department would not say if Mr Chen had been charged, but China Aviation said last night he is "currently out on bail." Several other China Aviation executives had earlier surrendered their passports to authorities as the official investigation of the scandal deepened.
That investigation is focused on oil trading by China Aviation on the Singapore exchange through October and November, which led to the massive losses as the global price of oil rose above $55 a barrel. Also under scrutiny is a $120 million sell-down of shares in the Singapore offshoot in late October by China Aviation's Beijing-based parent, as those trading losses began to soar.
At the time of the placement, it was claimed by the company and the placement's sponsor, Deutsche Bank, that the capital-raising was to provide expansion capital for China Aviation. No mention of the trading losses were disclosed and the funds seem to have met the company's urgent margin calls, as the oil price turned against it.
Mr Chen only admitted publicly to the huge losses in a Singapore High Court affidavit on November 29, when he said "financial difficulties of the company are due to trading losses and critical cashflow problems as a result of its losses in the trading of derivatives and the requirement to place margin deposits". He said in the same affidavit that he had reported the transactions to his masters at Beijing-based China Aviation Oil Holding Co, on October 10, weeks before the parent sold down its position through the market placement.
The scandal has embarrassed both China and Singapore, with both desperate to limit the impact on their respective reputations as reliable and transparent economies.
It has also ensnared some big names in world finance, with Goldman Sachs, of the US, and Britain's Barclays understood to be exposed to China Aviation.
It has also struck at the heart of Singapore's power and business elite. Singapore's state-owned investment company Temasek Holdings is a significant shareholder of China Aviation, and it took up stock in the Deutsche Bank October placement. Temasek, which controls such corporate gems as Singapore Airlines and Singapore Telecom, is part of Singapore's Ministry of Finance and is managed by Ho Ching. She is the wife of Lee Hsien Loong, the recently appointed Prime Minister. Temasek has been asked by China Aviation to bail it out financially.
Police start an inquiry into China Aviation Oil
Eric Ellis in Singapore
4 December 2004
The Times
SINGAPORE'S China Aviation Oil trading scandal deepened yesterday as police investigators began an inquiry into possible fraud in the company, a subsidiary of the Beijing-backed state monopoly that provides jet fuel to China.
Singapore is anxious to limit the impact on its reputation as a secure financial centre. The police action comes five days after China Aviation disclosed that it had lost US$550 million (Pounds 284 million) on oil derivatives trading. The scandal has shocked world markets and is Singapore's most serious financial drama since Nick Leeson, the British rogue trader, broke Barings Bank a decade ago.
Court papers seen in Singapore yesterday also revealed that the company's Beijing parent had hurried through a $200 million sale of a 15 per cent stake in its Singapore unit to cover margin calls on the rogue oil trades. At the time of the sale, China Aviation did not disclose the real reason for the sale of the shares, bought by European and Asian clients of Germany's Deutsche Bank.
Deutsche, while handling the share sale on October 21, said: "This transaction is positive for the company as it diversifies its shareholder base. It also underlines the strength of Deutsche Bank's Equity Capital Markets platform in Asia and our ability to raise capital for Singaporean corporates during difficult market conditions."
However, investigators have now learnt that two weeks before the share sale, China Aviation had burnt through $210 million in capital and bank loans to meet its open trades, then significantly in arrears as the world oil price surged.
A Deutsche Bank spokesman yesterday said: "This transaction was conducted entirely in accordance with market practice." The bank said that it was co-operating with regulators in Singapore, which include police, the central bank and the Singapore stock exchange, on which the trades took place.
Investigators have requested the return to Singapore of the China Aviation chief executive, Chen Juilin, who is thought to have gone to China after apologising for the mess in the company, which last year paid him Pounds 2 million in salary.
China Aviation has asked Singapore's state-owned companies, which had been enthusiastic investors in it, to help to bail it out.
The scandal has shocked Far East markets and raised questions about the financial probity of China's "red chip" stock market darlings, which have blossomed on stock exchanges around the world since mainland China's emergence as a business power after decades of communist isolation.
The ratings agency Standard & Poor's said that China's "complex corporate structures and unreliable accounting practices make it difficult to perform substantive analysis on some China-related companies".