Oil giant CEFC China faces more woes with creditors at the door and Russian oil deal collapse

Troubled energy conglomerate CEFC China has had another tough week, with boss Ye Jianming still missing, creditors demanding payment, and its deal to buy a 14 per cent stake in a Russian state oil firm collapsing.

Chinese rating agencies have meanwhile been cutting the company’s rating, making it harder for CEFC to raise money as creditors jostle to sue the company to secure assets. China Lianhe Credit Rating downgraded its main corporate vehicle, CEFC Shanghai, by a notch to BBB+, the third time in two months following cuts on April 9 and March 1. China Chengxin International Rating has also downgraded CEFC’s creditworthiness three times in the last two months, with the latest cut on May 2.

The embattled firm is facing an army of creditors, with dozens of representatives of institutions that have bought CEFC bonds attending an investor meeting at a Shanghai hotel on Friday, demanding financial information and debt repayment guarantees, China Business News reported.

Two more bond investor conferences are scheduled, on Monday and May 15, according to the underwriters of the bonds, with a batch of 2 billion yuan (US$314.4 million) worth of CEFC bonds due to mature on May 21.

CEFC Shanghai said in a corporate filing on May 2 that a court had frozen all of its shares in listed subsidiary CEFC Anhui. It said those shares had been used as collateral to borrow from different creditors, whose combined claims were more than seven times its actual holdings.

The South China Morning Post reported earlier that the Shanghai municipal government had attempted to take over the energy conglomerate via state-owned Shanghai Guosheng, but the investment and financing firm pulled out after reviewing CEFC’s financial situation.

Meanwhile, the overseas business empire of CEFC has been falling apart since Ye, its chairman and executive director, disappeared from public view early this year.

Glencore and the Qatar Investment Authority said on Friday they had scrapped a US$9.1 billion plan to sell their stake in Rosneft to CEFC, putting an end to a deal that could have given CEFC – which was barely known in China just five years ago – a key spot in the global energy industry.

The deal collapse came after Citic Group, China’s biggest state conglomerate, agreed to step in to take a 49 per cent stake in the European arm of CEFC last month.

CEFC’s plan to buy a stake in Russia’s state-backed oil producer Rosneft made headlines around the world when it was announced in September for the sheer size of the investment and the geopolitical implications of a closer energy alliance between Beijing and Moscow.

In a public letter after the deal became known, Ye wrote that it was the product of China’s energy supply safety strategy and Russia’s efforts to seek new financing sources. Ye also warned that there was “only one step between an exuberant summer and a cold winter”.

CEFC’s situation has gone from bad to worse since November, when former Hong Kong minister Patrick Ho Chi-ping was arrested in New York, accused of bribing officials in Africa. Ho worked for a fund affiliated with CEFC in Hong Kong, and CEFC said in a statement after he was detained that Ho’s activities had no link with the company’s commercial business operations.

CEFC China Energy was mentioned in one of the documents the prosecution submitted as evidence to a New York court at the end of April. It showed the firm offered US$2 million in donations to Chadian President Idriss Déby to help the needy as a symbol of its “sincere commitment” to the country. On Thursday, Liu Yadong, an executive from CEFC China Energy’s US subsidiary, was seen attending a New York court hearing on Ho’s third application for bail.

There is also speculation about the whereabouts of CEFC boss Ye. Chinese financial magazine Caixin reported on March 1 that Ye was under investigation for suspected economic crimes. But CEFC denied the report, saying it was not in line with the facts, and it was later removed from the Caixin website.

A statement from the Czech presidential office in March said Ye was being investigated by the Chinese authorities on suspicion of violating laws, after the Czech Republic sent a team to China to find out more about Ye’s company. CEFC has invested heavily in the European country and Ye has also worked as an “economic adviser” to Czech President Milos Zeman. A source familiar with the matter told the Post earlier, however, that Ye had not been arrested but was assisting the authorities with inquiries and was trying to keep a low profile.