China Aviation Oil hid US$390m derivative loss in struggle to survive

China Aviation Oil’s trading unit, China Aviation Oil (Singapore) Corp (CAOSCO) hid an initial US$390 million loss while its directors sought “white knights” to save it from liquidation, it emerged yesterday as the company announced an estimated US$550 million loss from oil derivative trading and suspended its chief executive Chen Jiulin while the loss is investigated.

The losses first became apparent in October – with oil prices rising steeply to US$55 per barrel, the company faced significant margin calls on its open derivative positions. A US$100 million emergency bailout by parent China Aviation Oil Holding Company proved to be insufficient to cover mounting margin calls and CASCO was forced to close positions with some counterparties.

At October 26 losses amounted to US$390. The company is in the process of closing existing outstanding positions, and

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