RESTRUCTURING OUTCOME

1.How do you think the creditors voted? How would you have voted if you were a
creditor? What is the basis for your decision?

Even though the China Aviation Oil offered a good repayment deal to the creditors, it collapsed
with a huge loss of over $550 million by derivative trading. A sum of roughly $275 million was
offered by the company to over 100 creditors over 5 years, which was still an upgrade from the
previous offer being $211 million over 8 years of period. Still, the plan was rejected by the
creditors and two of them even went ahead to sue the company. After all this in the next
restructuring proposal China Aviation Oil offered $100 million to its creditors and agreed to pay
$120 million over 8 years. But the drawback with this was that the threat if the plan got rejected
or lawsuits were filed by the shareholders then financial support would be withdrawn from the
company and it would leave the company without any worth.

Although the legal actions were held back from the individual investors, in US the lawyers had
filed class action law suits for multiple shareholders. The Indonesian investors had also filed
another law suit whose stake in the Singapore Refining Company was offered to be bought by
CAO previous to the collapse. Therefore, in our opinion the plan would have been voted against
by the creditors. Even if we were in the creditors most probably we also would have voted
against the plan. A major rationale behind this decision would be based on the fact that vital
information was being withheld by the company from the stakeholders. The comparative risk
involved in trading in financial companies is far greater than that which would have been if
trading was done in industrial activities. Hence, it is the right of the person who is the
shareholder to be aware and be known of the various activities and actions a firm is doing.
Withholding such information, violation of insider trading practises and misleading the practises
of balance sheet are all red flags.

Concluding to all that said above I as an investor would have less faith in the companies
functioning. At least the details such as instruments used by CAO for hedging purpose and with
respect to that of maturity, cash requirements, market value and credit risk should be known by
the shareholder.
The company should have been transparent about the risk it faces in any manner possible at least
in a quantitative way. The monitoring and accounting policies should have been clear in places to
be able to track these instruments. For the shareholders benefit, a qualitative discussion could
have been added.