CEFC Europe Deals Hit the Wall as Investment Firm Defaults on $327M in Bonds

One of China’s most troubled cross-border investors became the mainland’s latest default story this month as a unit of China CEFC Energy informed the Shanghai stock exchange that it had failed to fulfill obligations for bond payments totalling RMB 2.09 billion ($327.3) million.

The default by CEFC Shanghai International Group Ltd, which was reported to the exchange on Monday, comes after China CEFC chairman Ye Jianming was revealed in February to be under investigation for suspected economic crimes. The company’s financial troubles now expand beyond China’s borders to Europe, where CEFC’s Czech lender last week said it was seizing the Chinese firm’s assets over unpaid debts of around 450 million euros.

In March, CEFC was reported to have put some RMB 20 billion in properties in mainland China, Hong Kong, the US and Europe up for sale at discounts of up to 30 percent off of their market value. The company is estimated to have $4.8 billion in debt.

CEFC Aims to Repay Bondholders in Six Months

The energy firm, which had just last September attempted to acquire a 14.2 percent stake in Russian energy giant Rosneft for $9.1 billion, pointed to disruption in its business as it declared its inability to meet the bond obligations due Monday in a statement to the stock exchange.

“There have been significant changes to the issuer’s production and operations, it has failed to raise funds in the amount required, and it is unable to repay principal and interest on (the bond) in time,” the company declaration stated, as cited by Reuters. The firm announced its intention to make good on its debts and interest in another six months.

The notice of the default came after CEFC had voiced concern over its ability to make payment on its 270-day bond on May 14th. Earlier this year CEFC was reported as taking short-term loans from non-traditional lenders at annual interest rates of up to 36 percent in a scramble to cover its costs.

Mainland Investor Loses Control of Czech Holdings

CEFC made a splash in Europe where it had 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.

In April, representatives of Chinese state run conglomerate met with Czech President Milos Zeman and apparently agreed to bail out CEFC’s deals in the European nation by forming a joint venture with CEFC Europe.

However, on Thursday, Czech private equity firm J&T Private Investments said in a statement that it had seized shareholder rights and installed crisis management at CEFC Europe after the Chinese energy firm had reportedly failed to meet its financial obligations, according to a report in Reuters.

CITIC Fails to Cover CEFC’s European Debts

This alleged European default came after a CEFC official said in early May that CITIC would repay around 450 million euros owed by CEFC to J&T within days. Following J&T’s statement last week that it was taking control of CEFC Europe, a representative of the Chinese firm objected to the takeover and indicated that it had sufficient funds to meet its obligations.

Among the assets at stake in CEFC’s Czech holdings are the five-star Mandarin Oriental hotel in Prague, which the mainland firm had purchased from Singapore-based Hotel Properties Limited in 2016, and the Florentinum office complex in the same city that CEFC had bought from private equity group Penta Investments later that same year for a reported $311.5 million.