Derivative deals hit a rough patch

Chinese State-owned enterprises (SOEs) may unilaterally terminate derivative contracts with six foreign banks that provide over-the-counter commodity hedging services, Chinese business magazine Caijing reported, citing unnamed sources.

The report said that the State-owned Assets Supervision and Administration Commission (SASAC), China's SOE watchdog, has informed the financial institutions in written letters that SOEs reserved the right to default on those derivative contracts.

Air China, China Eastern and shipping giant COSCO - among the Chinese SOEs mired in huge derivatives losses since late last year - have issued letters to banks, Reuters reported yesterday, citing a Singapore-based bank source, who said he had heard of the letters and that they were all in the same format. However, no bank name was mentioned in the report.