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

November 02, 2006

    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
http://www.xinhuafinance.com/creditrating .

    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
http://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
http://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 http://www.fareast-cr.com .

    For more information, please contact: 

    Hong Kong
     Joy Tsang
     Corporate & Investor Communications Director
     Xinhua Finance
     Tel:   [phone]
            [phone]
            [phone]
     Email: [e-mail]

    US
     Ms. Ishviene Arora
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings