Arrested CAO chief is released on bail

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Chen Jiulin, chief executive of China Aviation Oil was arrested on Wednesday as Singaporean authorities step up investigations into the city state's biggest trading scandal in nearly a decade.

The move came as CAO appealed for more time to formulate a restructuring plan, saying it was still pursuing bail-out talks with Singapore's state-run investment agency, Temasek.

Singapore police, its financial regulator and stock exchange are investigating CAO's losses and the sale by its parent, CAO Holding, of a 15 per cent stake in the company in October. The case is seen as a test of Chinese corporate governance standards.

Mr Chen has alleged the parent's share placement was aimed at helping the Singapore unit cover its trading losses, despite company statements at the time that the proceeds would be used for investment.

Mr Chen was arrested and later released on bail on his return to the city state on Wedesday morning from his native China.

He left Singapore last week after revealing that CAO had suffered an estimated US$550m in losses from failed bets on oil prices. It was not clear whether any charges have been filed against him.

In spite of Mr Chen's arrest, Jia Changbin, the president of CAO Holding, insisted the parent company remained committed to bailing out its stricken unit, which holds a near-monopoly on China's jet fuel imports.

In an affidavit filed with Singapore's high court, CAO said any restructuring plan hinged on announced talks between its parent company and Temasek about a possible joint recapitalisation of the company.

The affidavit follows an application on Tuesday by the company to be given a six week extension to prepare its restructuring plan.

In a move possibly aimed at preventing other Chinese state-run oil companies from taking over its business, CAO said it would set up a subsidiary to continue its jet fuel procurement activities on an ?agency? basis. The parent planned to inject an undisclosed amount into the company to provide initial funding.

CAO also said it still had three ?back-to-back? options positions open and 35 swap derivatives contracts that it was seeking to terminate. It did not give further details but these are understood to have been accounted for in the $550m loss estimate.

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