About a week after Sinopec's substantial losses caused by its unsuccessful hedging transactions, the Chinese authorities stepped in to investigate the case on Wednesday, The Paper reported.
The investigation launched by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), the authority overseeing China's key state-owned enterprises (SOEs), is to find out how deeply these key SOEs get involved in financial derivative-related transactions.
Apart from the SASAC, other authorities are also reported to be collecting data about the transactions of this type from China's large state-owned oil companies.
This round of official actions serves as a response to a statement released by Sinopec, one of China's three largest state-owned oil companies, a week ago.
The statement says that Chen Bo, general manager of the China International United Petroleum & Chemicals Co., (UNIPEC), one of Sinopec's wholly-owned subsidiaries, together with the company's another top official Zhan Qi, are suspended from assuming their roles.
Although the statement fell short of explaining the reason for the company's decision, it is widely believed that the decision resulted from the company's failed hedging transactions happening later in last December, which inflicted huge losses for it.
Data shows that as China's largest company engaging in foreign trade, the UNIPEC imported 185 million tons of crude oil in 2017, which accounted for as much as 44 percent of China's total crude oil imports for that year.
It is a common practice for large foreign trade companies to conduct hedging transactions in order to offset the risks arising from price volatilities.
So far, it remains unclear just how badly the UNIPEC has suffered from those hedging transactions, which wiped out up to 47 billion yuan (6.84 billion U.S. dollars) in its market capitalization or a 6.75 percent plunge in its share price on December 27.
It is worth noting that the statement also makes clear that UNIPEC's two involved top officials didn't commit any misconduct.