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CAO Bailed out by Investors

A Chinese oil trading company will be given US$130 million to help it survive after losing US$560 million in speculative oil deals in Singapore.

China Aviation Oil (Singapore) Co Ltd (CAO) will get the money from its Beijing-based parent, China Aviation Oil Holding Co (CAOHC), oil group BP and Singapore state-owned investor Temasek.

The cash is part of a rescue plan set up a year after the jet fuel trader nearly went bankrupt following the huge trading losses.

The investment follows approval from CAO creditors to allow the company to seek strategic investors as part of a restructuring process prior to re-listing on the Singapore Exchange.

CAOHC will invest US$75.77 million and get 51 percent of the restructured CAO and BP will invest US$44 million for a 20 percent stake in CAO, according to the Singapore aviation oil trader, whose shares have been suspended since the scandal broke in November, 2004.

Aranda, a wholly-owned subsidiary of Temasek, will buy a 4.65 percent stake in CAO for US$10.23 million, it said yesterday.

BP and Temasek were selected as new shareholders for their "strength" and "reputation," CAO said.

"They (the new investors) will share with us their expertise and experience, especially in the areas of corporate governance, risk management and business management, all of which will benefit us," Gu Yanfei, head of CAO's special task force, said yesterday.

As part of the restructuring scheme, the jet fuel trader will sell 10 percent of the firm to its creditors for US$22 million.

After the transaction, minority shareholders will have a 14.35 percent interest in CAO.

According to a CAO statement, CAOHC and BP also signed a Memorandum of Understanding whereby both will likely inject assets that are "synergistic and complementary" to CAO's business.

BP will appoint two directors to CAO's board, and the UK-based oil giant will provide various training and risk management services to the jet fuel company, CAO said.

Industry analysts yesterday said the new investment reflects BP's desire to break further into the Chinese market.

"BP is aggressively expanding in China, especially in the downstream petrochemical sector, and the CAO investment means more access for the world's second-largest oil company," Liu Gu, an analyst with Guotai Jun'an Securities (Hong Kong) Ltd, said.

Air BP, a multinational unit of the company, is the "first and only major foreign oil company" to supply aviation fuel in China and already has two ventures with China Aviation Oil Supply Co, a wholly-owned unit of CAOHC, according to BP's website.

(China Daily December 6, 2005)

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