China Aviation Oil holds off collapse
Fuel firm confident key creditor will not enforce demand on US$14m payment that will result in immediate insolvency
China Aviation Oil (Singapore) Corp (CAO) has won the first round of its fight to avoid liquidation, with a key creditor yesterday holding back on a legal move that would have forced the company into immediate insolvency.
Lawyers involved in talks between CAO and its creditors over the company's US$550 million loss from derivatives trading said they were confident that Standard Bank London would not proceed with moves to put the company into liquidation.
Under the terms of a statutory demand filed by Standard Bank in the Singapore courts two weeks ago, the company had until yesterday to repay US$14.4 million or be declared insolvent.
'Standard Bank London has actually been quite supportive of the company's situation and its proposal for a scheme of arrangements,' said Yap Lian Seng from Stamford Law Corp, who is acting for CAO's Beijing-based parent company.
'So although we have received nothing in writing from them, we do not expect them to act on their statutory demand.'
CAO's apparent success in staving off insolvency also means the company is not in breach of the conditions of a five-year US$160 million syndicated loan it took out in July last year.
Officials from CAO and its parent company, China Aviation Oil Holding, met representatives of the 10 banks in the Societe Generale-led syndicate in Shanghai yesterday.
Chen Jiulin, the suspended chief executive of CAO, said in his November 29 affidavit to the Singapore High Court that the company had used US$120 million of the syndicated loan as early as October 10 to meet margin calls on its derivatives trading.
He also stressed in the affidavit that under the terms of the loan, the company would be considered to be in default if it was declared insolvent.
The next stage of the fight to avoid liquidation will occur at a hearing in the High Court later today, when CAO's lawyers will argue for a six-week extension to negotiate a scheme of arrangement with creditors.
However, at this stage, CAO and its parent company appear confident that their application for an extension will not be opposed by the seven creditors, which are owed US$247.4 million.
'We have been given no notice by any other party that there will be a challenge during the extension hearing,' Mr Yap said.
If it is granted an extension, CAO, a jet-fuel trader, is hopeful of securing a US$100 million cash injection from its parent company and Temasek Holdings, the investment arm of the Singapore government.
'We will evaluate the possibility of our participation when a complete restructuring proposal is available,' Temasek spokeswoman Eva Ho said yesterday.
