Auditor Faults CAO Singapore Actions
China Aviation Oil (Singapore) Corp., the oil trader that ran up US$550 million in losses last year trading derivatives, was way out of its depth in the options market and lacked basic risk-management controls, according to its investigative auditors.
The Singapore-listed company, which is majority owned by its Beijing-based parent, China Aviation Oil Holding Co., valued its crude-oil options incorrectly, misunderstood the risks it was taking, ignored its own internal controls and failed to report accurately its positions to shareholders, PricewaterhouseCoopers said in a scathing report released yesterday.
The Singapore Stock Exchange ordered CAO Singapore to bring in Pricewaterhouse to find out what went wrong after the company disclosed its losses and filed for bankruptcy protection late last year. This report doesn't apportion any blame, but Pricewaterhouse, which is continuing its investigation, will complete a second report later this year that will focus more closely on the actions of individuals.
The report issued yesterday could hurt CAO Singapore's efforts to win support from its creditors on a restructuring plan it presented in January. Two of its biggest creditors have filed suits accusing CAO Singapore and its directors of fraud, which the company has denied. Creditors are scheduled to vote in June on the restructuring proposal, which over eight years pays them about 41 U.S. cents for every dollar owed.
CAO Singapore, which released the report, commented on some of the report's findings but didn't deny any of them. It said it will conduct its own review of its risk-management and corporate-governance procedures.
CAO Singapore, which has a monopoly on importing jet fuel into China, began speculating in oil derivatives in late 2003. The company's initially profitable trades turned into huge losses last year as it added to its incorrect bets that oil prices would fall.
Pricewaterhouse's report sheds fresh light on what exactly went wrong -- details likely to sharpen concerns over shortcomings in corporate governance and structure at many of China's state-owned entities.
The company introduced a risk-management manual that covered swaps and futures in March 2002, more than a year after trading in such contracts had started. CAO Singapore's audit committee reported in 2003 that the company was developing guidelines for options trading, but none were ever introduced.
The company's risk-management manual stated that the board had to approve trading of new products, but Pricewaterhouse investigators found no evidence that the board ever formally approved options trading. CAO Singapore Chief Executive Chen Jiulin also was responsible for day-to-day risk management, something that the accounting firm said should have fallen to the chairman of the risk-management committee -- especially as Mr. Chen himself was an "active trader" in swaps and futures, according to the report.
Mr. Chen was suspended Nov. 30, arrested by Singapore police in December and released without being charged. The police are continuing an investigation connected with CAO Singapore. Mr. Chen, reached by phone last night in Singapore, declined to comment.
CAO Singapore did have internal stop-loss controls that should have limited any trading loss to US$500,000 per trader, or US$5 million in company-wide losses. Pricewaterhouse will address in its second report how those limits were breached.
In addition to its lack of controls, CAO Singapore was woefully unprepared to deal in the sophisticated derivatives market, according to Pricewaterhouse. The techniques it adopted for valuing the options it was trading, for example, were "incorrect and did not reflect industry standards," the report said.
Options confer the right to buy or sell a particular underlying asset such as a stock or a barrel of oil, at a set price during a set time period. CAO Singapore used a simplistic methodology, more applicable to valuing other derivatives, that didn't properly factor in the time period during which the option can be exercised, said Pricewaterhouse.
That way of looking at options can underestimate their risk and understate their estimated losses. In the case of CAO Singapore, it led to ever-larger discrepancies between the results the company reported to shareholders and the mounting losses sitting in its options portfolio. When the company reported 19 million Singapore dollars (US$11.5 million) in pretax profit for the first quarter of 2004, it should have reported a loss of S$6.4 million, contended Pricewaterhouse. CAO Singapore's S$11.3 million pretax profit for the third quarter should have been a S$314.6 million loss, the accounting firm said.
CAO Singapore, which cooperated with the investigation, noted that Pricewaterhouse itself acknowledges that options valuation isn't an exact science.
Pricewaterhouse said that CAO Singapore hewed to its valuation methodology even after its trading partners demanded payment on unprofitable trades that differed wildly in value from the trading company's own estimates. The accounting firm said it found no evidence that CAO Singapore disputed the amounts cited in so-called margin calls from its trading partners.
The Pricewaterhouse report concluded that CAO Singapore's massive losses were seeded early on and then grew as the company repeatedly tried to paper over its problems by taking on ever-bigger bets.
As CAO's executives came to grips with the massive losses late last year, they failed to report them to investors, the Pricewaterhouse report indicated.
Confirming an account reported in The Wall Street Journal in December, the report said CAO Singapore's finance director, Peter Lim, prepared two different sets of financial results for an audit committee meeting on Nov. 11 -- one that reflected the losses and one that didn't.
Amid expectations that CAO Singapore's Beijing parent would bail the company out of its losing positions and it wouldn't have to report them, Mr. Lim presented the positive results to the audit committee with the qualification that they needed "further verification," according to the Pricewaterhouse report. On Nov. 12, Mr. Lim received a faxed copy of an agreement purportedly signed by Jia Changbin, president of the parent company, and he released the positive results to the public. However, the Pricewaterhouse report said Mr. Jia told its investigators that he didn't sign any such document. Mr. Lim has declined to comment on this issue. After the Journal's report was published, CAO Singapore said it would investigate the matter.
普华永道发布中国航油调查报告
据普华永道(PricewaterhouseCoopers)最新发布的一份报告显示，去年在衍生品交易中亏损了5.5亿美元的中国航油（新加坡）股份有限公司(China Aviation Oil (Singapore) Corp., 简称：中国航油)并不具备进行期权交易的能力，同时缺乏基本的风险控制。
中国航油为新加坡上市公司，其绝大部分股份为中国航空油料集团公司(China Aviation Oil Holding Co.)持有。普华永道周二在一份措辞严厉的报告中称，该公司错误评估原油期权价格，未能认清面临的风险，忽视内部控制，并且未能向股东准确汇报公司状况。
在中国航油去年披露出现巨额亏损并申请破产保护后，新加坡证交所要求中国航油聘请普华永道对其进行核查。周二公布的报告并没有指出责任人和责任方，但普华永道目前仍在继续调查，并将在今年晚些时候公布第二份报告，届时将重点关注个人在此事件中的行为。
中国航油正在争取债权人支持其在1月份提出的重组计划，这份报告可能会对此不利。其中两家最大的债权人已经提起诉讼，指控中国航油及其董事做假，但公司已否认了此项指控。公司债权人定于6月份就重组计划进行投票，根据这项计划，中国航油将在未来8年时间内逐步偿还41%的债务。
中国航油对报告的部分结论发表了看法，但并未否认这些结论。公司称，将对风险管理和公司治理程序进行自我评估。
中国航油垄断了中国的燃油进口业务。公司从2003年底开始进行石油衍生品交易的投机，由于公司错误地预计油价将下跌，初期的盈利最终变成了巨额亏损。
普华永道的报告为弄清巨额亏损的缘由提供了新的线索，并可能会加剧外界对大量中国国有企业在公司治理和结构上存在的问题的担忧。
中国航油在2002年3月了颁布内容涉及掉期和期货的风险管理手册，而在此之前一年多时间，公司就已开始进行这方面的交易。中国航油的审计委员会2003年曾表示公司正在制定期权交易指导方针，但此后却一直没有推出。
根据公司的风险管理手册，新产品交易须获得董事会的批准，但普华永道的调查发现，没有任何证据表明董事会曾正式批准公司进行期权交易。报告显示，中国航油首席执行长陈久霖负责日常的风险管理，但普华永道认为，这一职责应该由风险管理委员会的主席负责，特别是考虑到陈久霖本身就是掉期和期货交易的积极参与者。
陈久霖去年11月30日被停职，12月份遭新加坡警方逮捕，之后在未受到任何指控的情况下被释放。新加坡警方目前仍在对中国航油进行调查。记者周二晚间致电在新加坡的陈久霖，但他拒绝置评。
中国航油的确制定了内部止损控制措施，应该能够对单个交易员亏损50万美元、或公司整体亏损500万美元的交易进行限制。普华永道将在第二份报告中公布这些限制是如何被打破的。
据普华永道称，除了控制不利外，中国航油也并没有为进入复杂的衍生品交易市场做好充分准备。报告称，比如，公司使用的期权估值方法就不够准确，没有反映出行业标准。
期权指的是在特定时间、以特定价格买进或卖出股票或石油等基础资产的权利。普华永道称，中国航油采用了一种过于简单的估价方法，没有将期权执行时间的因素恰当考虑近来。这种方法更适合其他衍生产品。
这种方法使得期权交易风险以及可能带来的损失均被低估。具体到中国航油，这种方法还导致了公司向股东公布的业绩与实际的期权交易亏损额之间存在很大的出入。普华永道称，当公司公布2004年第一财政季度税前利润为1,900万新元（1,150万美元）的时候，它实际上应该公布的是亏损640万新元；当公布第三财政季度税前利润为1,130万新元的时候，实际上应该是亏损3.146亿新元。
中国航油则指出，普华永道自己也承认期权估价并非一项精密科学。
普华永道表示，由于一些亏损的交易在估价上与经纪公司自己的估计存在巨大差异，因此经纪公司曾要求中国航油支付相应保证金，即使在这种情况下，中国航油仍坚持上述估值方法。普华永道称，没有发现任何证据表明中国航油对其经纪公司发出的追缴保证金通知中的金额提出过异议。
普华永道的这份报告总结称，中国航油在交易的初期就埋下了巨额亏损的隐患，此后随著公司为掩盖问题而铤而走险，不断加大赌注，亏损额终于越积越多。
普华永道的报告指出，中国航油的管理人士在去年年底了解到巨额亏损的情况时，并没有及时向投资者报告。
报告证实了去年12月《华尔街日报》(The Wall Street Journal)的一则报导，称中国航油财务主管Peter Lim为11月11日召开的审计委员会会议准备了两套不同的财务报告，其中一份反映了上述亏损，而另一份则没有。
据普华永道的报告称，Lim预计中国航油的母公司会出手帮其弥补亏损，公司从而不必将此消息公诸于众，他因此向审计委员会提交了那份较为积极的财务报告，并称这些财务数据需进一步核实。11月12日，Lim收到了据称是母公司中国航空油料集团总裁荚长斌签署的一份协议的传真，之后，他向公众公布了那份积极的财务报告。不过，普华永道的报告称，荚长斌向其表示他并未签署这样的文件。Lim拒绝就此事置评。在《华尔街日报》报导发表后，中国航油表示将对此事进行调查。
