Interview: China Aviation Oil
>> china aviation oil’s trading losses raise concern about corporate governance. the supplier of 1/3 of china’s jet fuel said yesterday it will ask the hicourt for protection from creditors. it lost can $550 million on bad derivative trades on oil prices. one fund manager joins us from new york. the stock is suspended in singapore. what do you plan to do with those shares?
>> at the present time there’s nothing i can do. although you call us the 10th largest shareholder, it’s a small position in terms of our overall portfolio, it’s actually less than 1% at cost, now it’s even less.
>> is there anything that would change your mind? would you consider buying more shares and under what conditions?
>> we now believe strongly that the senior management was in collusion, if you will, to hide what was actually going on which was a series of very poor derivative positions. this company evidently felt they were smarter than the market and had been shorting oil all year and hiding those positions. at this point, with losses of $550 million u.s., which is a fair bit over 900 million singapore, that is about equal to the total value of the company so there’s basically nothing left. it seems to me the only way out of this for the company is for somebody to come in and cover those losses. to cover those losses, you’re basically taking over the company so no matter what happens, the shareholders are hung out to dry. my guess is there will be a number of lawsuits filed in coming weeks.
>> is it an attractive acquisition target if someone were to buy china aviation oil?
>> with 900-plus million sing dollars in losses against an asset back of a billion one, a billion two, very few people will show interest in biological the company. buying the company. if is the company goes into bankruptcy, somebody will come in and buy the assets at bargain prices but that will not benefit the shareholders.
>> there is speculation that singapore is attracting so-called second tier chinese companies while bigger chinese companies are choosing to list in new york and hong kong. do you agree with this?
>> i’ve been asked that a couple of times, cathy. i think the situation is that a number of singapore brokerage firms, investment banks, have gone to china, to the provincial governments looking for underwriters, underwritings of good quality companies. most of the major companies are looking to hong kong and new york for listing. that does not imply that the companies that list in singapore are poor companies or companies with spotty track records or companies that just don’t measure up to list in either new york or hong kong. i think what you find in singapore are a group of companies, whether they’re in the shipping business or power business or in the food business, which are perhaps smaller companies, maybe with market caps of, say, 100 million to 500 million dollars and those companies have found that this is a vibrant market in singapore and they find that an attractive market with good following by the brokerage community in singapore.
>> will china aviation’s trading losses depress the market or slow plans for initial public offerings from chinese state-owned companies?
>> probably will temporarily. it is a shock. it was a favored stock of a number of investment firms in singapore as recently as two or three weeks ago so obviously those brokerage firms have egg on their face and people like myself who have owned the company for a long time feel as though a burglar snuck in the back door, so, yeah, i think we’ll be just as careful as we were when we looked at this company when we first went in. you can’t protect yourself against crooks. i mean, the bottom line is, if a guy’s going to be a crook, you’re going to lose. we’ve seen that with any number of companies in the united states from worldcom and enron on down to companies in asia and in every other part of the world. parmalat in italy, these are big companies, small companies, if crooked people are running them, there’s no way out and this is a small example of that.
>> don, it’s good to talk with you, as always, thanks for that. and up next, searching for gold in one of asia’s poorest countries. an executive from australia’s pan australian resources will tell us about expansion plans for laos.
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Listen Interview: Liu Mingkang
our exclusive interview with liu mingkang is coming up. u.s. stocks climb, falling oil prices helped boost the s&p 500 to its highest close in more than three years. oil has its biggest drop in more than three years. the dollar falls to a record against the euro and 12-year low versus the british pound. investors speculate the bush administration favors a weaker dollar to cut the nation’s record trade deficit. china’s allowing foreign banks access to five more cities effective immediately. 18 chinese cities are now open for foreign banks to do business. china is easing restrictions on overseas banks expansion ahead of its full open bank disclosure in 2006. the head of china’s regulatory commission, liu mingkang, tells stephen engle why it’s taking longer to reform industrial bank and agricultural bank.
>> i think the big four banks share the same challenges and the province that, in the meantime, if you look at the four banks individually, you will find a huge gap among them in terms of the stock on non-performing loans and the causes to why they could get there and so for design, effective and efficient, tailor-made reform package for icbc and agricultural bank of china, it takes a long time. it’s still in the careful design and discussion and debate o.i think at least we need some time to go and get over there. we’ll keep you well informed where we are.
>> you have a rough time table as far as what “a little more time” is? is it six months, a year?
>> it depends on how fast and howl they―how well they prepare their home work, then we will do the due diligence and assessment and report to the state council.
>> how would you assess the $45 billion capital injection in the other two banks, the progress there in the profitability of the banks, disposal of n.p.l.’s some?
>> what we can see in the previous three quarters, bank of china’s revenue has been increased by more than 23% and the construction bank of china, more than 21%. their coverage ratio, the loan loss provision coverage ratio for bank of china is approaching 70% and the construction bank of china approaching 90%. our standard is about―the international standard is about 100%. so they are approaching the international targets and also we are very pleased to see the costs on the revenue ratio which would control the costs during the process of reform is very satisfactory because both of them are 35% so even with the asian standards, which is the best one, the worldwide, they are on the top. and also today we can see the n.p.l. n.p.l―nonperformance loans ratio for bank of china is still 5.4% and 3.88% for construction bank of china. it’s within the range of control. so, so far so good, i should say, but it’s a long way to go and we will monitor the progress because we have a benchmark for year 2006 and year 2007 but definitely i’m convinced and optimistic about the progress in the near future.
>> i do have to ask about the accelerated time table of opening up chinese banks to foreign players. you opened up two more cities, including shown yang―shen yang. can you explain why?
>> we witness a huge wave of investment going towards the western and north sea china. a lot of foreign banks approaching us to talk about options of development there so we think we have to match the demands and needs and boost the inland provinces across the northeast areas and there is potential and there’s no reason why we say no for their presence there and that’s the reason we put forward the time table in saying these two cities should open now, instead of one year later.
>> that’s china’s top banking regulator, liu mingkang, speaking with bloomberg’s stephen engle. state bank of india raises its first bond sale by a third, increased to $400 million on higher demand. hsbc holdings said they priced the bond to yield 117 basis points more than u.s. treasuries of similar maturity. new rules have encouraged indian companies to take advantage of cheaper debt abroad. general electric wants to settle a dispute with the indian government over the da-- dabhol power plant. the government was a guarantor to the company that was founded by the now-failed enron corporation. nokia extends its lead in the mobile phone market for the second straight quarter. gartner says new models and price cuts boosted the market share to 39%. samsung electronics overtook motorola as number two handset maker, gaining ground by selling camera phones with the flip of up design. gartner said sales rose in the third quarter. coming up, china aviation oil is under investigation by the singapore stock exchange. we’ll speak to a fund manager whose company holds of aiation oil shares.
