Dec 2, 2004

Full Disclosure

"The state-owned parent of China Aviation Oil failed to disclose to investors that the sale of a 15 per cent stake in the company was intended to cover mounting derivatives losses at the Singapore-listed group, according to court documents."

"The revelation, made in an affidavit by Chen Jiulin, CAO's suspended chief executive, to Singapore's High Court, will heighten concerns over insider trading, lax corporate governance and poor disclosure at Chinese groups listed on international exchanges."

"The court document, submitted on Monday and obtained by the Financial Times, says that CAO has received payment demands totalling more than $247.5m from seven financial institutions including Goldman Sachs, Barclays Capital, Standard Bank and Mitsui & Co."

"On October 20, CAOHC reduced its stake from 75 to 60 per cent, raising S$196m ($120m) through a share placement to investors, believed to be mostly hedge funds. At the time, CAO issued an eight-line statement to the Singapore exchange reporting the placement without specifying the reason for the share sale. On the same day, a CAO spokesperson told Bloomberg the parent "had an investment they are making and they need to raise the cash"."

The issue was brought by Deutsche bank.

Read the full story.

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