China Aviation oil shares soar
Reuters | Mar. 28, 2006
Shares in revamped China Aviation Oil soared to a high of S$1.85 on Wednesday, more than triple their S$0.515 placement price, as trading resumed after a 16-month suspension from Singapore's stock market.
CAO's (CNAO.SI: Quote, Profile, Research) share price was sharply above expectations of Singapore stock brokers who had predicted that the shares could rise as high as S$0.60.
"This is way above expectations. There's simply too much demand for its shares and not enough supply," said a dealer at a local brokerage.
"Oil prices are surging, so there'll be interest in this play."
U.S. crude oil futures on Tuesday settled above $66 a barrel, the highest in eight weeks, amid concerns over supply disruptions.
The jet fuel trader, which nearly collapsed under $550 million in trading losses in 2004, has since undergone major restructuring and attracted new investors who subscribed for new shares at S$0.515 per share.
Trading in the shares had been suspended since November 26, 2004, when China Aviation announced the losses as a result of a bet on oil prices that went wrong. The stock last traded at S$0.965 before it was halted, according to the Singapore Exchange.
As part of the restructuring, which was formally completed on Tuesday, the shares were consolidated at a ratio of five to one.
SHORT-TERM RISKS
While there are lingering concerns that CAO's near-monopoly in China's jet fuel imports may be hurt should Beijing open up the business to other players as part of its oil market liberalization, some analysts say CAO is unlikely to lose its key position.
"As CAO is able to consolidate the entire jet fuel demand in China in a single order book and issue bulk tenders for jet fuel under open order price, it is able to get the best prices for jet fuel," DBS Equity Research said in a note.
"As such, we expect CAO to continue to have a natural monopoly due to its low cost options," said DBS, adding that the stock "has long-term promise due to the growth prospects of Chinese aviation".