CEFC China Energy emerged from obscurity to buy up a horde of overseas assets from energy firms to European real estate. Now the ambitious but secretive mainland conglomerate is in trouble.
The head of CEFC has reportedly been detained for questioning by Chinese authorities, and the Shanghai-based firm, China’s largest privately owned oil and gas group, is said to have been taken over by an arm of the Shanghai government.
CEFC now appears to be joining the ranks of other corporate players from China, including Anbang Insurance Group, HNA Group and Dalian Wanda Group, which have been punished by the country’s regulators after splurging on offshore deals.
CEFC Puts Billions into Real Estate
Founded in 2002 as a crude oil trading firm, CEFC made global headlines last September when it agreed to pay $9.1 billion for a 14.2 percent stake in Russian oil giant Rosneft. The deal, which is now in jeopardy, would make the Chinese company one the largest shareholders in the world’s biggest listed petroleum firm.
In recent years, CEFC has also spread its wings beyond energy to invest in real estate both in China and abroad. An affiliate of CEFC joined seven other strategic investors to shell out RMB 30 billion ($4.3 billion) for a combined 13.16 percent stake in Hengda Real Estate, the property unit of developer China Evergrande in January of last year.
Ye Jianming Becomes Major Prague Player
CEFC has also snapped up real estate assets in the Czech Republic, where it has been a pioneer Chinese investor, buying stakes in businesses from airline Travel Service to central European investment firm J&T Finance Group. In September 2015, CEFC purchased the former Land Bank (Živnostenská banka) building in central Prague, and shortly thereafter signed a deal to scoop up the five-star Le Palais Art Hotel Prague.
The following August, the company was cleared by Czech authorities to buy the five-star Mandarin Oriental hotel in the capital city from Singapore-based Hotel Properties Limited. CEFC extended the shopping spree three months later by picking up the Florentinum office complex in Prague from private equity group Penta Investments for a reported $311.5 million.
The company has also invested in top Czech football club Slavia Prague and has moved to buy a 70 percent stake in the club’s stadium, with plans to redevelop the venue.
Strata Floors, Petrol Stations and Industrial Zones
The company’s property interests have stretched beyond office buildings and sports arenas. Last year, CEFC agreed to buy a controlling stake in oil refiner KMG International, a unit of Kazakh state energy firm KazMunayGaz. Through the deal, CEFC committed to invest more than $3 billion over five years in the group that operates over 1,100 petrol stations across Europe.
CEFC, a cheerleader for China’s Belt and Road trade and infrastructure drive, also said it was planning to set up an industrial zone in the port city of Poti, Georgia, which would serve as a logistics and trading hub linking China to Europe and Central Asia.
Buying Binge Hits Regulatory Wall
The sustainability of the company’s growth trajectory is now in question, as CEFC’s young founder and chairman Ye Jianming is reported to have been detained and investigated for suspected economic crimes last month, according to Chinese news outlet Caixin.
CEFC has denounced the Caixin report as “irresponsible” and said it was not based on fact. Reports have also surfaced that management of CEFC has been taken over by Shanghai Guosheng Group Co, an investment agency controlled by the Shanghai municipal government.
CEFC Joins Ranks of China’s Illiquid Mega-Investors
The reasons for the takeover are unclear, but a Reuters account suggests that CEFC is facing liquidity pressure, prompting the company to approach non-traditional lenders for short-term loans at exorbitant rates, according to sources.
The conglomerate has about RMB 44 billion ($6.94 billion) of short-term debt coming due by the first half of this year, according to a 2017 disclosure cited by Reuters. CEFC has total debt of RMB 117 billion as of June 2017, versus total assets of RMB 169 billion. The company claimed $42 billion of revenue in 2015.
The reported state seizure of CEFC evokes the fate of Anbang Insurance Group, the Beijing-based conglomerate best known for a $30 billion global buying spree that included the Waldorf Astoria hotel in New York. The China Insurance Regulatory Commission (CIRC) formally took control of Anbang late last month, announcing that its former chairman and CEO Wu Xiaohui, who disappeared into detention last year, is being prosecuted for economic crimes.