CAO creditors may lose up to 80% of debt
(HK Edition/China Daily)
Updated: 2005-01-06 13:51

CAO, 60 per cent owned by Beijing-based China Aviation Oil Holding (CAOH), was China's main importer of jet fuel before its shock collapse under US$550 million of derivative trading losses in November.

CAO owes more than US$500 million, according to a source familiar with its debt. The company, which has sought court protection from creditors, has said it will disclose its total indebtedness on January 24 when it presents its rescue plan.

Deloitte & Touche Financial Advisory Services, hired by CAO for the restructuring, has started asking some creditors to consider forgiving part of the debt owed them.

"We've been asked whether we're prepared to recover only 20-30 per cent of our debt but nothing is cast in stone and there are no undertakings on the level of haircut," said a source familiar with the situation. Creditors "take a haircut" when they write off part of their debt.

A Deloitte spokeswoman said the firm was "in discussions with the creditors" but added that it was "not at liberty to reveal specific details as this could jeopardize future negotiations".

A CAO creditor, who declined to be named, said he understood the size of the proposed write-off varied according to whether the lender was a financial institution or a trade partner and on how long they were prepared to wait for repayment.

For CAO to escape liquidation, the firm would have to get the green light for the rescue plan from at least half of its creditors or from those holding 75 per cent of its debt, the usual terms for a debt restructuring.

Creditors include Mitsui & Co, Barclay's Capital, Sumitomo Mitsui Banking, Goldman Sachs Group and Dutch-Belgian financial services group Fortis.

Observers say the lenders are likely to reject the write-off numbers proposed so far.

But lenders face limited options as CAO could be liquidated if the rescue plan doesn't move ahead.

"CAO is essentially a trading company so the size of its assets won't be substantial. If the company were liquidated, the creditors are not going to get back a whole lot more," said a lawyer involved in corporate restructuring.

Close