HONG KONG, Nov. 2 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings
(‘Xinhua Far East”) today upgraded the issuer credit rating of China
Aviation Oil (Singapore) Corporation Ltd (“CAO” or “the Company”, SGX
China Avi Oil) from BBB+ to A-. Its rating outlook remains stable.
The upgrade was prompted by success of the Company’s restructuring plan,
effective from March 27, 2006, which resulted in improved operating
performances and a stronger balance sheet. In light of the Company’s
monopoly in its core business areas, ongoing support from shareholders and
improving risk management controls, CAO should continue to benefit from
booming growth in the aviation oil sector, which should help maintain its
credit profile.
Under the restructuring plan, China Aviation Oil Holding Company
(“CAOHC”), BP Investment Asia limited (“BP”) and Aranda Investments Pte
Ltd (“Aranda”), an indirect wholly-owned subsidiary of Temasek Holdings
(Private) Limited, took 50.88%, 20% and 4.65% stakes respectively in the
Company. Apart from the support already provided by CAOHC, Xinhua Far East
believes that the introduction of BP and Aranda as shareholders should
further strengthen CAO’s management capability, especially in respect to its
jet fuel procurement business and oil products business.
Based on an assessment of actual and contracted sales, CAO’s total
tender volume for 2006 is forecast to be 4.6 million metric tonnes (“MT”),
which would represent a 51% increase from the 3.04 million metric tonnes
recorded for the same period of 2005. A total of approximately 1.14 million
MT of jet fuel was purchased in 2Q 2006 and 2.06 million MT in 1H 2006, an
increase of 83% and 69% respectively, compared to the same period in 2005.
It should be noted that in June 2006 the Company returned to trading on a
principal basis, instead of on an agency basis. This not only indicates
normalization of the Company’s business model, but also allows it to enjoy
greater flexibility and, probably, a higher profit margin in its jet fuel
procurement business moving forward.
Xinhua Far East forecasts that the recurrent cash flow contribution from
Shanghai Pudong International Aviation Fuel Supply Company Ltd (“SPIA”),
33% of which is held by the Company, should be relatively stable in the
coming years. While ongoing reform to China’s jet fuel pricing mechanism
will likely place stresses on its profit margin, soaring aircraft movement
volumes at Shanghai Pudong Airport, the only international airport in
Shanghai, should more than offset any negative effect on overall earnings.
Indeed, SPIA contributed investment income of S$8.4 million in 2Q 2006
and S$17.9 million in 1H 2006 compared with S$8.3 million in 2Q 2005 and
S$17.5 million in 1H 2005. Given SPIA has no significant forecast capital
expenditure nor acquisition plans, Xinhua Far East believes that it will
continue to maintain a high dividend payout ratio, allowing CAO to enjoy a
stable cash dividends from SPIA.
In summary, the sound operations of the restructured CAO will continue to
be bolstered by the favorable market environment, which will allow CAO to
progressively reduce its debt burden and enhance its debt service
capabilities over the next couple of years.
Even so, Xinhua Far East notes that CAO has a heavy reliance on its
parent company, and faces certain uncertainties in prices and market reform
in the PRC’s aviation sector, factors which constrain CAO from obtaining a
higher rating at this time.
CAO mainly engages in the business of the procurement of jet fuel and
investment holdings. It has a 33% stake in Shanghai Pudong International
Aviation Oil Supply Company Ltd and currently has a monopoly on the import of
jet fuel into mainland China. In 2004, CAO incurred significant losses of
S$864.8 million, due to a net loss on options trading.
For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating .
About Xinhua Far East China Ratings
Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture
in China that aims to rank credit risks among corporations in China. It is a
strategic alliance between Xinhua Finance (TSE Mothers: 9399), and Shanghai
Far East Credit Rating Co., Ltd. Shanghai Far East became a Xinhua Finance
partner company in 2003 and the first China member of The Association of
Credit Rating Agencies in Asia in December 2003.
Capitalizing on the synergy between Xinhua Finance and Shanghai Far East,
Xinhua Far East’s rating methodology and process blend unique local market
knowledge with international rating standards. Xinhua Far East is committed
to provide investors with independent, objective, timely and forward-looking
credit opinions on Chinese companies. It aims to help investors differentiate
the credit risks among the corporations in China, thereby, cultivating their
awareness and promoting information disclosures and transparency in China
market.
For more information, see http://www.xfn.com/creditrating .
About Xinhua Finance Limited
Xinhua Finance Limited is China’s unchallenged leader in financial
information and media, and is listed on the Mothers board of the Tokyo Stock
Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China’s financial
markets and the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through four focused and complementary
service lines: Indices, Ratings, Financial News and Investor Relations.
Founded in November 1999, the Company is headquartered in Shanghai with 20
news bureaus and offices in 19 locations across Asia, Australia, North
America and Europe.
For more information, please visit http://www.xinhuafinance.com .
About Shanghai Far East Credit Rating Co., Ltd
Shanghai Far East Credit Rating Co., Ltd. is the first and leading
professional credit rating company with comprehensive business coverage in
China. It is an independent agency established by the Shanghai Academy of
Social Sciences with the mission to develop internationally accepted
standards for capital market in China. The company is a pioneer in conducting
bond-rating business in China. For years, it has been authorized by the
Shanghai branch of the PBOC to undertake loan certificate credit rating.
Since establishment, it has rated over 1,000 corporate long-term bonds
and commercial papers, based on the principles of objectivity, fairness and
independence. The company has also maintained over 50% market share in the
loan certificate-rating sector in Shanghai for three consecutive years. With
its strong local presence and knowledge, it provides investors with unique
and the most insightful credit opinion.
For more information, see http://www.fareast-cr.com .
