China backs state firms on oil options losses
09.07.09, 05:14 AM EDT
CHINA-OPTIONS/SASAC (UPDATE 2):UPDATE 2-China backs state firms on oil options losses

* SASAC confirms some SOEs sent letters to their banks

* Letters say SOEs to reserve rights of recourse on trades

* SASAC also says SOEs reserve rights to launch lawsuits

* Lawyers say devil is in details of trading contracts (Adds analysts comments, market reactions)

By Eadie Chen and Tom Miles

BEIJING, Sept 7 (Reuters) – Beijing has publicly put its weight behind some state-owned firms struggling with oil derivatives losses, saying it will back them in any legal action against the foreign banks that sold the products.

In a statement on Monday, the State-owned Assets Supervision and Administration Commission said that some state-owned enterprises had sent letters to their trading partners about oil structured options trades, confirming a report in Caijing magazine last week that had sent shudders through the banking community.

“(SASAC) will support companies to minimise losses and protect rights through negotiations and holdings management. We also reserve the right to launch legal suits,” the agency said.

The move is the latest by SASAC to curb the over-the-counter derivatives business after a series of corporate commodity and forex hedging deals went spectacularly bad over the past 10 months, costing Chinese state firms billions of dollars.

Bankers were unhappy with the latest developments.

“If they declare bankruptcy, it is different. But if these companies are still in business, it is not acceptable for them to just walk away from the losses,” said a Singapore-based banker, who like others declined to be named due to the sensitive nature of the matter.

The agency did not specify the names of state firms and their trading partners involved in the issue.

A Singapore-based bank source told Reuters last week that Air China , China Eastern and shipping giant COSCO had issued almost identical notices to their foreign investment banks.

Major global providers of commodity risk management such as Goldman Sachs ( GS – news – people ) , UBS ( UBS – news – people ) , Morgan Stanley ( MS – news – people ) and JPMorgan were not immediately available for comment.

DEVIL IN DETAILS

Lawyers said that the details of the contracts will be key in deciding whether Chinese state firms can just walk away from their loss-making commodity derivative trades.

“As far as I know, many of the contracts signed between foreign investment banks and Chinese state firms follow the International Swaps and Derivatives Association (ISDA) format,” a Beijing-based derivatives lawyers said.

“Usually the ISDA format allows the product-selling banks to choose the region and types of law their contract should be subject to,” said the lawyer, who declined to be named due to the sensitive nature of the issue.

That means that the investment banks can choose regions other than China to resolve their disputes with Chinese firms, and usually these contracts will be regarded as legal in other regions, the lawyer said.

The lesson for Chinese firms is that they have to increase their expertise about derivatives and make sure they have the right to choose Chinese law to settle their dispute with their banks, the lawyer added.

OIL OPTIONS PROBES

SASAC said in the statement that it was also investigating some state firms’ oil option trades and repeated that it would ban state firms from making speculative derivatives trades.

It also warned that state firms should choose trading partners carefully to steer clear of complex products.

Suffering big losses, some state firms have been complaining that their foreign investment banks sometimes did not reveal sufficient information about the potential risks of the products they are touting.

“The word is that these new directives from China are directed more towards exotic hedging instruments such as structured options, among others, than plain vanilla swaps,” said an oil derivatives trader with a bank.

“It would seem that some Chinese companies lost a lot of money on exotics without really understanding how the instruments work.”

Starting from January, SASAC has sent a series of warnings to crack down on the sale of derivative products by foreign banks to Chinese enterprises who bought protection against higher prices last year only to watch the market collapse.

In July, it ordered state companies to report their holdings of futures, options, forwards and swaps, and investment performances, to the watchdog within 10 working days of the end of each quarter.

For more details on derivatives regulation: [ID:nPEK207347]

For a timeline [ID:nSP481422]

For an analysis [ID:nSP508234] (Additional reporting by Yaw Yan Chong and Judy Hua in Singapore; Editing by Michael Urquhart)

Copyright 2009 Reuters

中国国务院国有资产监督管理委员会(State-Owned Assets Supervision and Administration Commission, 简称:国资委)周一称,国资委支持部分央企对油料结构性期权交易的交易对手保留追索权以及采取进一步法律诉讼的权利。

为解决部分大型国有企业在衍生品交易中遭受的巨额损失,国资委采取了上述不寻常的举措。

中国政府的立场还表明,政府加大了对此类具有法律约束力的高风险场外交易双边合约的干预力度。随着中国在油料结构性期权市场上发挥越来越大的作用,国资委此举将引起市场对中国长期公信力的担忧。

不过,短期来看,一些观察人士认为,国资委此举旨在迫使作为国有企业交易对手方的国际投资银行同意就交易合约进行重新谈判,并把国有企业的损失降低至最小。

国资委在一份公告中称,部分央企已经向交易对手致函,表示鉴于对该项业务的内部调查正在进行,其保留追索权利。

国资委表示,对央企此举予以高度关注和支持,有关交易对手应当予以协助。

国资委并未透露这些央企的名称,但据两位知情人士表示,中国东方航空股份有限公司(China Eastern Airlines Co., 简称:东方航空)、中国国际航空股份有限公司(Air China Ltd., 简称:中国国航)和中国远洋运输(集团)总公司(China Ocean Shipping (Group) Co., 简称: 中远集团)8月初就衍生品合约事宜致函六家投行。

其中一位知情人士称,信函内容包括监管部门对各种交易进行了调查,初步调查结果显示部分交易可能无效或不能执行。该人士没有提供其他细节。

东方航空董事会秘书罗祝平拒绝就此事置评。中国国航发言人饶昕瑜称,她不能证实中国国航是否是致函投行的央企之一。记者未能联系到中远集团发言人。

自美国次贷危机演变成为一场全球性的衰退以来,一些知名中国国有企业遭受了数十亿美元的损失,原因是这些企业以套期保值的名义通过复杂的金融衍生品进行投机性投资。分析师们称,这在一定程度上表明部分国有企业在大规模投资衍生品方面缺乏经验。

例如,去年年底,东方航空公布在石油对冲交易上的已兑现损失为人民币800万元,而同期未兑现损失总额约为人民币62.6亿元。截至今年6月30日,东方航空公布在石油对冲交易上未兑现收益为人民币27.9亿元,不过主要得益于此前的拨备和最近油价的上涨。

业内观察人士称,政府很可能是想向国内表明其在这件事情上的决心,这可能也暗示出参加衍生品交易的国有企业或许还没有大规模违约。

众达国际法律事务所(Jones Day)驻北京的律师陶景洲称,国内民众对国有企业海外衍生品合约巨亏所导致的国有资产流失感到愤怒,这迫使国资委摆出一定的姿态。

陶景洲还表示,这些国有企业不可能简单地违背衍生品合约,因为如果它们违约的话,对手方就会根据合约中规定的法律条款起诉它们。

上海某大型衍生品经纪公司的一位高级管理人士称,实际上,由于衍生品合约通常是根据境外法律签订的,因此如果中国国有企业违约的话,它们在新加坡或香港胜诉的可能性非常小。

这位人士称,他认为,国资委如此高调介入此事的真正意图是让投行重新回到谈判桌,为国有企业争取到更好的利益。

他说,他认为投行别无选择只有重新回到谈判桌,最终中国国有企业将减少损失;中国是这些投行未来发展的唯一地点,这就是现实。

Shen Hong / Yue Li

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