Xinhua Far East Upgrades the Issuer Credit Rating of China Aviation Oil (Singapore) to A- from BBB+, the Rating Outlook Remains Stable

Xinhua Far East Upgrades the Issuer Credit Rating of China Aviation Oil (Singapore) to A- from BBB+, the Rating Outlook Remains Stable

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 www.xinhuafinance.com/creditrating .

Note to Editors:
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 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 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 www.fareast-cr.com .

More Information:

Hong Kong
Joy Tsang
Corporate & Investor Communications Director, Xinhua Finance
Tel: +852-3196-3983, +8621-6113-5999, +852-9486-4364,
Email: joy.tsang@xinhuafinance.com

US
Taylor Rafferty (IR/PR Contact in US)
Ms. Ishviene Arora
Tel: +1-212-889-4350,
Email: ishviene.arora@taylor-rafferty.com

Source: Xinhua Far East China Ratings

CONTACT: Joy Tsang of XFN, +852-3196-3983/ +852-9486-4364/ +8621-6113-
5999, or joy.tsang@xinhuafinance.com; Ms. Ishviene Arora of Taylor Rafferty
(IR/PR Contact in US) , +1-212-889-4350, ishviene.arora@taylor-rafferty.com

Web site: http://www.xinhuafinance.com/
http://www.xinhuaftse.com/
http://www.xinhuafinance.com/creditrating
http://www.xfn.com/creditrating
http://www.fareast-cr.com/

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