Financing Arm of Embattled CEFC Halts Bond Sale

The main financing arm of embattled CEFC China Energy has dropped a plan to issue bonds to raise up to 5 billion yuan ($795 million), raising fresh concerns about deepening troubles for China’s largest private energy conglomerate.

In a statement Tuesday, the Shanghai Stock Exchange said CEFC Shanghai International Group had halted the plan, which was designed to raise money to repay debts and supplement working capital. CEFC Shanghai’s board and shareholders approved the bond issuance last year.

The announcement was the latest sign of growing financial troubles for CEFC China, which quickly rose from relative obscurity to a fast-expanding oil and finance giant through aggressive acquisition deals at overseas markets. CEFC China amassed a large portfolio of assets in Europe, the Middle East, Central Asia and Africa before agreeing in September to buy 14% stake in Rosneft, to become third largest shareholder of the world’s biggest listed oil firm.

In late February, Caixin reported that CEFC China’s founder, Ye Jianming, was being investigated by Chinese authorities. Officials in the Czech Republic, where CEFC China has investments, confirmed that Ye was being probed by Chinese authorities, based on information from Chinese official and the company’s representatives.

The investigation of Ye has cast uncertainty over CEFC China’s deals. The company planned to finance about $5 billion of the Rosneft deal through bank loans, but domestic institutions have grown cautious about the deal, sources told Caixin.

The parent company’s troubles have rocked its subsidiaries.

This week, China Chengxin International Credit Rating Co. downgraded CEFC Shanghai International Group from AA+ to AA-, citing concern about the company’s debts and worsening ability to secure funds. It was the second downgrade by the ratings agency in about a month.

According to the prospectus released in January by CEFC Shanghai to its bondholders, as of end September, CEFC Shanghai had 19.8 billion yuan in long-term debt and 48.7 billion yuan in short-term debt. The company’s overall liability-to-asset ratio stood at 69.87%.

CEFC Shanghai posted 245.7 billion yuan in revenue in 2016, with business costs totaling 238 billion yuan, underscoring its tight capital. In its prospectus, the company warned that it faces mounting repayment pressures due to growing business expenditures and investments.

CEFC Shanghai currently has repayment obligations on 13 bonds worth 29.6 billion yuan, including 10 billion yuan to be repaid this year, according to data from financial information provider Hithink Flush Information Network. The maturity of 2 billion yuan worth of bonds will come on May 21.

Last week, CEFC Anhui International Holding Co., a subsidiary of CEFC Shanghai, said 496 million shares held by the parent company have been frozen by several courts. The shares represent a 21.8% stake in CEFC Anhui.

CEFC Anhui also forecast its profits would decline by 50% and its revenue would fall by 80% in fiscal year 2017 due to shrinking energy trading business.

Bloomberg reported that CEFC China is considering selling assets valued at more than 20 billion yuan due to its financial woes.

CEFC China’s Czech-based subsidiary — CEFC Europe — said in a statement last month that Ye was stepping down from management and shareholding roles of CEFC China, and that a new shareholder has emerged as CEFC China plans a change in its shareholding structure.

Last week, Chang Zhenming, chairman of state-owned Citic Ltd., confirmed that the company has held talks with CEFC China for a stake investment.

Contact reporter Han Wei (weihan@caixin.com)