CEFC defaults on 2 billion yuan of bonds as fallen oligarch’s asset-buying firm goes rudderless

PUBLISHED : Monday, 21 May, 2018, 9:44pm
UPDATED : Monday, 21 May, 2018, 9:49pm

A principal unit of embattled CEFC China Energy, a freewheeling asset buyer controlled by financier Ye Jianming, has failed to repay a 2 billion yuan (US$313 million) bond that expired on Monday, exacerbating worries about the outlook of the once-prominent energy conglomerate.

CEFC Shanghai International Group was not able to pay back the principal of 2 billion yuan, as well as 88.8 million yuan of interest for the nine-month notes issued on China’s interbank market, according to a statement on the website of the Shanghai Clearing House.

The default arose from substantial changes in its operations because Ye, chairman of the parent company, could not assume his role amid failed attempts to raise fresh capital to repay debts, the company said, adding that it would need another six months to pay back the debt.

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Ye is being investigated by Chinese authorities for suspected economic crimes, and could not be reached to comment.

CEFC, one of China’s biggest asset buyers over the past years, is under pressure to repay debts it used to fund the acquisitions around the world, which were valued at about US$12 billion.

Its acquisitions included a US$9.1 billion deal to buy a 14.16 per cent stake in Russia’s oil giant Rosneft.

The deal fell through after Ye was taken away by mainland law-enforcement authorities for investigations in February, prompting Qatar’s sovereign wealth fund to step in to pick up the stake on May 4.

“A default was within market expectations,” said Wang Feng, the chairman of Shanghai-based financial services firm Ye Lang Capital. “It marks the beginning of chain reactions since the company has other debts that are due to expire in the coming months.”

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Two sources with knowledge of CEFC’s debt woes said that the Shanghai government was involved in the restructuring of the energy conglomerate, seeking to help it divest part of the assets including properties and equities in some financial institutions.

The failure to meet its payment obligations on Monday will immediately trigger a cross default on its US$250 million dollar notes, according to Bloomberg. Another 2 billion yuan of CEFC Shanghai’s bond will expire at the end of July.

Fitch Ratings said the stability of China’s onshore market will hinge on how CEFC implements a debt workout plan due to the magnitude of its debt amount.

CEFC and HNA Group were among several Chinese asset buyers placed under scrutiny by regulators for the reckless borrowing they undertook to fund their global acquisitions.

Last month, China’s state-owned Citic Group stepped in to take control of 49 per cent of CEFC Europe, which controls the oil conglomerate’s businesses in the Czech Republic.