The Mysterious Chinese Company that’s Trying to Buy a $9 Billion Stake in Rosneft?

The Chinese government has taken over its management, and its CEO is under investigation.

By Tsvetana Paraskova,

When a little-known private Chinese company said in September 2017 that it would be buying 14 percent in Rosneft, many analysts were wondering how an obscure fuel trading company rose to such prominence as to become a major global M&A player to the point of agreeing to pay as much as US$9 billion for the stake in Russia’s oil giant.

Six months later, the mystery surrounding CEFC China Energy is not only left unsolved—it has become even more unclear, with a flurry of media reports over the past week revealing that its CEO is under investigation by the Chinese authorities and that the Chinese state has taken over management of the company as it seeks to rein in private businesses and their unrestrained spending.

With all the negative news surrounding CEFC China Energy over the past week, analysts are now wondering if the company has fallen out of favor with the Chinese authorities and if the acquisition of the stake in Rosneft is in jeopardy.

When it announced the deal to buy 14 percent in the Russian oil giant from Glencore and the Qatar Investment Authority (QIA), CEFC China Energy said that it is invested in oil and gas development in Russia, Central Asia, Central and Eastern Europe, the Middle East and Africa, and owns oil and gas terminals in Europe, including oil refineries and gas stations.

On February 21, 2018, Glencore said in its 2017 results release that the Rosneft deal, “subject to customary regulatory approval processes, is expected to complete in H1 2018.

Just a week later, reports emerged that Chinese authorities were investigating the chief executive of CEFC China Energy, Ye Jianming, on suspicion of economic crimes.

CEFC said that those reports were “unfounded” and “irresponsible”. Rosneft spokesman Mikhail Leontyev told Reuters that the investigation was not related to the Russian company.

Nevertheless, the reports about CEFC’s chief executive being investigated are reminiscent of China seizing control of Anbang Insurance Group last month and charging its chairman with fraud and abuse of position.

A day after reports emerged about CEFC’s Ye being investigated, the South China Morning Post reported that the state is taking over the management and daily operations at CEFC China Energy, citing two sources with direct knowledge of the matter.

Shanghai Guosheng Group, a portfolio and investment agency controlled by the municipal government of Shanghai, has taken over management at CEFC China Energy in a widening crackdown on private entrepreneurs, SCMP reported, noting that most of CEFC’s acquisitions were funded by Chinese state banks, primarily China Development Bank, which is financing projects in line with China’s state policies.

CEFC China Energy is also said to have failed to pay for registered capital of an oil trading joint venture that it would have created with a company controlled by the Chinese Zhejiang province, and the government-controlled company has scrapped the JV plan, people with knowledge of the matter told Bloomberg.

The flow of media reports about troubles at CEFC China Energy makes analysts question the company’s ability to close to the Rosneft deal, as it looks like that the Chinese firm is in the crosshairs of the crackdown on private businesses after President Xi Jinping’s government warned just last week that no Chinese billionaire, no matter how well-connected, is safe from scrutiny and investigation.

Commenting on CEFC China Energy’s predicaments, Li Li, a research director with commodities researcher ICIS China, told Bloomberg:

“Now, many people in the industry are questioning not only its capability to finalize the Rosneft deal but to sustain normal operations.”

According to Bloomberg Gadfly columnist Nisha Gopalan, while the Rosneft deal is unlikely to be totally scrapped, should the Chinese government take over control of CEFC, this could provide a pretext to renegotiate the financial terms of the stake’s acquisition.

While China and Russia continue to boost their oil relations, the Chinese government is stepping in to rein in private businesses and possibly obtain direct control over private Chinese energy ventures overseas. By Tsvetana Paraskova,

As Chinese conglomerates are suddenly disappearing from the US property market, the formerly hottest trophy market gets a dose of reality. Read…  This is What Happened to Sales & Prices of Manhattan Office Buildings as Chinese Buyers are Suddenly “Absent”

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  15 comments for “The Mysterious Chinese Company that’s Trying to Buy a $9 Billion Stake in Rosneft?

  1. TheDona says:

    This seems to be a reoccurring theme. The sketchy overnight Billionaires are on a buying spree, the State has to step in and the Billionaire has to feign falling on the sword. It appears to me that the State is using these guys as a Broker, especially in this instance since the State is the one who was financing the deal.

    • Rates says:

      I suspect these “billionaires” are merely pawns in the Xi (Jinping) – Jiang (Jemin) game.

      We’ll see more in the coming month/years.

    • Nicko2 says:

      State controlled oligarchs buying out other state controlled oligarchs. I don’t really see a problem. The Saudi’s and Qatari’s are in the American camp anyway. Let China buy Russia out — they are beating them at their own game this century anyway —- check out Eastern Siberia, China is taking over, while Russia is depopulating.

  2. And it all has something to do with Kim talking nice with the president.

  3. Gandalf says:

    Right, Xi Jinping right now wants to be in control of everything. His anti-corruption campaign has fallen almost entirely on people who were not personally loyal to him, and the deals that have come unraveled have been because he wasn’t in on the action. His personal wealth is secret and estimates have ranged from a hundred million to billions. You don’t get that from a state salary.
    In China, these stories about billionaires who run afoul of the authorities (some have even been executed) are always because somebody in power got pissed off about something or just got greedy and decided they could imprison/kill the guy and take all his wealth away.

    • Frederick says:

      Very true you don’t Tell that to people like Nancy Pelosi and Diane Feinstein just to name a couple

  4. raxadian says:

    China seems to want to make the same mistakes the Soviet Union did and have everything be state controlled.

    This is partly because they want to avoid a crash but whatever.

    But is quite possible the company only had that much cash due to US cheap credit and was actually a zombie company.

  5. michael Engel says:

    China is becoming totally dependent on Russia for energy.
    So is Europe and Germany, in the frigid weather.
    China silk road is under Putin boots. He can always tax it or smash it.
    WTI between 60 to 66 was a “gift” for Putin, in front of the Russian election and the football world cup.
    The question is if Russia immune system is strong enough to
    survive a stronger and rising USD attack and avoid a humiliating
    Dutch disease for the second time.
    This time around, Russia will know what to do, the bible was written in GB before his death.

    • Gandalf says:

      China has increased its imports of oil from Russia with two new pipelines, and is building a natural gas pipeline to Russia, but otherwise it’s sources of oil and natural gas remain quite diversified, with Middle Eastern countries still making up the bulk of its sources of oil and many countries, mostly in Southeast Asia, supplying its LNG.
      Given their sometimes contentious history, China is not likely to let itself become dependent on the Russians, ever.
      Which makes China way smarter than the Europeans, some of whom are 100% dependent on Russian gas.

    • Nicko2 says:

      There are half a dozen LNG plants that will be operational within the next two years along the Gulf Coast of the US. Europe will get all the cheap American LNG they can handle. Oh yes….and check out what is happening in the Eastern Mediterranean – large Nat Gas plays in Egypt/Cyprus/Israel — a new boom is under way. Russia is snookered.

      • moomoo says:

        I wish people would stop going on about LPG is going ‘save the day’ and ‘beat the Russians’

        LPG can’t be delivered in significant enough quantities to challenge pipeline systems.

        • Wolf Richter says:

          LPG = liquefied petroleum gas = propane. And in that sense, you’re correct. Propane cannot compete with pipeline natural gas on price, though many households and companies that are not hooked up to a natural gas distribution system use propane instead, and it works just fine. They have a big tank, and a truck from their local propane distributor comes by and fills it up periodically.

          Nicko2 was talking about LNG – liquefied natural gas. Japan gets ALL is natural gas as LNG because there are no NG pipelines to Japan.

          LNG is a competitor to pipeline NG and thus can and does put pressure on pipeline NG prices. When pipeline NG is priced based off crude oil, which it often is, LNG can provide a cost effective alternative. Prices are set at the margins, and it doesn’t take much volume by a competitor to put pressure on all prices.

  6. MC01 says:

    Over the last two-three years there appears to have been a boom into what I can only call “fly-by-night” Chinese companies and “businessmen” going on extremely costly acquisition spreads abroad.
    Some are nothing more than fronts for huge conglomerates and extremely rich individuals (often Party members) trying to get around capital controls and hence loaded with real cash but the rest… I don’t know if anybody here has read the story of the “purchase” of Milan AC, the Italian football club, by a mysterious Chinese “businessman” called Yonghong Li.
    Let’s just say that so far the story is so surreal Buñuel and Cocteau would scratch their heads in amazement. Nobody seems to know Mr Li’s birthplace or even birthdate and what he touted to be the source of his extraordinary wealth (phosphate mines) turned out to belong to well known mining concerns which strongly denied having even heard of Li’s name.

    The scary thing however is how easily foreigners are taken in by such dubious schemes. While one may say the business climate in countries such as Russia and Honduras is conductive to such shady deals the ease with which people in Europe, Australia, Canada and the US are taken in by promises of big money backed by big nothing is astonishing.
    The Milan AC deal, when all was said and done, was worth north of €1 billion. There aren’t that many Chinese billionaires and conglomerates that can afford spending that money on what is basically a whim: like all big Italian football teams Milan AC is a money losing machine.
    It would have been pretty easy (and not too expensive) to hire somebody in Hong Kong or Shanghai to find out more: after all a billionaire with so much cash to burn should be well known in the business community and among Party officials, or at least his name would not be unheard of.

    When somebody wants to make a large deal with me, I always try to find if he has the means to pay or supply me with what’s written in the deal. That’s part of of what I consider due diligence: conmen have always been a penny a dozen and there are all sorts of fly-by-night companies and individuals out there.
    And I am a nobody: I would expect people dealing with huge sums of money to be at least this cautious, not to be dazzled by the first chap who walks into the room talking big.

  7. chris Hauser says:

    “but everybody is having such a good time.”

  8. Steven Smith says:

    I suspect it isn’t a Chinese company but company from China owned by 3rd parties, most of the big global corporations are owned by the same pool of annointed folks and they certainly aren’t Chinese peons. Pretty sure China has comport blessed deficits to ours both in trade and their annual budget, the money flowing into China flows right out the door just as fast.

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