CORPORATE GOVERNANCE
TWO YEARS AND A LOT OF MONEY
By Jennifer Lee

A Singapore judge sentenced Peter Lim, former CFO of Singapore-listed jet fuel importer China Aviation Oil (Singapore) (CAO), to two years in jail and fined him S$150,000 for his role in a cover-up of around US$550m in oil derivatives trading losses in 2004. If Lim cannot pay the fine he will have to spend another year in jail in lieu. From an original five charges, Lim pleaded guilty to two: conspiring to cheat and making misleading statements. He was fired from his post last December.

Lim is the first of four executives to be tried in the CAO case, and authorities say he has cooperated with their investigation. His sentencing was closely watched as a measure of the severity with which the Singapore courts would punish corporate crime. He could have been sentenced to a maximum of seven years. Lim had agreed to issue financial reports that hid the losses and conspired with chief executive Chen Jiulin to deceive Deutsche Bank. In October 2004 CAO sold a 15% stake in the company to Deutsche, claiming that the money would go toward the purchase of new ships and for investment. Instead, the US$110m was used to meet margin calls.

CAO nearly collapsed as result of the losses. A dramatic restructuring, subject to approval by shareholders on March 3, will give creditors the option of an upfront cash payment of 45 US cents on every dollar they are owed, or 58 US cents a dollar spread over five years. CAO’s parent, Beijing-based China Aviation Oil Holdings Company (CAOHC), has committed to contributing US$75.8m, which will up its ownership to 51% of the restructured company; BP will contribute US$44m and Temasek Holdings will contribute US$10.2m for minority stakes. The company hopes to relist at the end of March.

In a separate, but related incident, CAOHC reached a civil penalty settlement of S$8m with the Monetary Authority of Singapore for insider trading. It seems the parent sold 15% of its shares in CAO just before its trading losses were announced.