China’s largest private oil group was scrambling for loans even as authorities were swooping in
CEFC has approached several non-traditional financial institutions, and sought out loans with higher-than-market rates to refinance its acquisitions
CEFC China Energy, the once-acquisitive conglomerate, was prepared to pay annual rates of as much as 36 per cent for short-term funding in a sign of the cash crunch faced by the company as authorities were closing in on its chairman, according to multiple people with knowledge of the matter.
Earlier this month, it was revealed that Ye Jianming, the company’s chairman, had been investigated for suspected economic crimes.
Guosheng Group, an investment firm owned by the Shanghai government, was tasked with evaluating CEFC’s financial position as part of a restructuring and takeover process, according to two sources with knowledge of the moves.
But from at least the second half of last year, CEFC was approaching shadow bankers - non-traditional lenders - for costly short-term loans, said six sources with direct knowledge, in a sign of the strained liquidity the company was facing.
In early January, CEFC borrowed 1 billion yuan (US$158.00 million) from the Shanghai-based Bida Holding Group, also known as U.Trust Holding Group, for a 15-day loan with a daily interest rate of 0.1 per cent, equivalent to an annual interest rate of 36 per cent, said one person with direct knowledge of the matter.
The company also approached Shenzhen Qianhai Everbright Financial Holding Investment Management, Zhejiang-based Wanxiang Trust and Hebei-based Bohai International Trust, a unit of HNA Capital, for expensive loans, said people with direct knowledge of each respective company.
Qianhai Everbright and Bohai International Trust were tapped for M&A funds to finance deals, while Wanxiang was approached for money for corporate financing.
None of the companies lent to CEFC for reasons ranging from concerns over liquidity and opaque ownership to difficulties appraising asset value and timing issues, trust sources said. The rates of interest discussed was unclear. However, annual rates on short-term trust loans can be as high as around 12 per cent, the sources said.
CEFC said the information of its expensive loans mentioned in the story is “not correct”, without giving further comment. Guosheng, the Shanghai government, Bida, Qianhai Everbright and Bohai International Trust did not respond to requests for comment. Wanxiang Trust declined to comment.
“CEFC has no cash and is solely relying on outside money” to keep the company running, said one of the people who has knowledge of CEFC’s debt situation. “It remains a question how it’s going to repay all the debt coming due.”
The Shanghai-based conglomerate has around 44 billion yuan of short-term borrowing due by the first half of 2018, according to its 2017 half-year financial report disclosed to onshore bondholders.
Its total debt amounted to 117 billion yuan at the end of June, compared to total assets of 169 billion yuan. It reported a 2016 net profit of 4.5 billion yuan.
Trust lending in China is not as tightly regulated as bank activity, allowing trusts to charge higher rates of interest to borrowers who may struggle to access more traditional forms of finance.
“Paying ultra-high interest rates is a sign of intense demand for cash,” said Andrew Collier, managing director of Orient Capital Research. “Clearly, the leadership in Beijing is putting pressure on CEFC to raise funds quickly to reduce its debt load or pay off specific creditors, such as state-owned banks.”
CEFC’s single largest source of financing has been China Development Bank (CDB) which was also expected to play a large role in funding CEFC’s US$9.1 billion purchase of a 14.16 per cent stake in Rosneft, the Russian oil major, announced last year.
Nomura, one of the banks initially tapped for finance, was later told to step down as CEFC was set to raise US$5.1 billion in short-term loans from Russia’s second-biggest lender, VTB, according to a separate source with direct knowledge of those discussions.
CEFC was in separate talks with CDB to later refinance the short-term bridging loan being offered by VTB, Reuters reported at the time.
CDB and Nomura didn’t respond requests for comment.
Zheng Zhijie, president of CDB, said last week that the bank was not involved in financing the Rosneft stake purchase by CEFC.
“We have not received an application seeking financing, how can we start considering?” he told Reuters.
Asked how CEFC has performed over its current loans to CDB, Zheng said: “So far they’ve made all repayments on time.”
CEFC Shanghai International Group, a subsidiary of the group, has bonds worth 10.1 billion yuan maturing this year, according to Reuters data. In addition, bondholders will be able to exercise options to sell an additional 3 billion yuan of bonds back to the company in December.
China Lianhe Credit Rating Co., a domestic credit ratings agency, earlier this month downgraded CEFC Shanghai following media reports of an investigation into the chairman of its parent company. Trade in five bonds issued by the company with a total value of 14 billion yuan has been suspended from March 2.