Bourse Demands More Disclosure by CEFC Unit Amid Debt Woes

* Creditors have held multiple meetings, demanding more financial information and debt repayment plans

* CEFC Anhui’s stock has lost 37% of its value since trading resumed April 25

The Shenzhen Stock Exchange gave CEFC Anhui International Holding a week to provide a detailed explanation of its debts and transactions with affiliated companies after auditors issued a disclaimer on the company’s 2017 annual financial report.

The bourse issued a delisting warning to CEFC Anhui last week, reflecting the deepening financial woes of the company’s parent, the embattled oil giant CEFC China Energy. The private conglomerate’s founder, Ye Jianming, was put under investigation by Chinese authorities over suspected economic crimes earlier this year.

CEFC Anhui, which is principally engaged in fertilizers, agricultural chemicals and energy businesses, is controlled by CEFC China’s main business subsidiary, CEFC Shanghai International Group. CEFC Shanghai contributed about 78.5% of CEFC China’s annual revenue in 2015.

CEFC Anhui’s stock has lost 37% of its value since trading resumed April 25 after a suspension of more than a month following media reports on the investigation of Ye.

After filing its annual report on April 26, CEFC Anhui disclosed in a statement that its auditor, Shanghai Certified Public Accountants, issued a disclaimer of opinion against the annual report, citing outstanding issues and a “severe liquidity shortage.”

The auditor said it could not warrant that the annual report and the 2018 first-quarter report are factual, accurate and complete without any false record, misleading statement or important omissions.

According to the annual report, CEFC Anhui posted an 11.7% decline in 2017 revenue to 16.8 billion yuan ($2.6 billion). Net profit rose 21.6% to 447 million yuan, the company reported.

As of the end of 2017, CEFC Anhui had total outstanding debt of 3.3 billion yuan, according to the annual report. The company said it was unable to pay debt obligations due to a cash shortage.

In an inquiry letter issued Tuesday, the Shenzhen exchange demanded an explanation from CEFC Anhui on the issues raised by the auditor and their impact on the company’s financial statements. The bourse gave the company until May 15 to disclose the size of its debt, funds usage, maturity dates, and detailed plans for repayment. The exchange also required CEFC Anhui to explain in detail its transactions with affiliated parties — deals that may put shareholders’ interest at risk.

News of the Ye probe has sparked a series of downgrades of CEFC China’s units, leading to the abandonment of a bond sale, the freezing of assets by several courts and the collapse of CEFC China’s planned $9.1 billion purchase of a 14% stake in Russian oil giant Rosneft from a consortium led by Swiss mining giant Glencore. Last week Glencore said it sent a notice to CEFC to terminate the deal.

CEFC China has spent about $400 million to push forward the transaction, and it won’t get that money back, according to reports by Russian media Vedomosti.

Since last month, CEFC Shanghai’s creditors have held multiple meetings, demanding more financial information and debt repayment plans.

At the most recent meeting last Friday, a group of creditors asked all bondholders to act together and not to pursue separate lawsuits and asset freezes. Another bondholders meeting organized by underwriter Postal Saving Bank is scheduled this Friday. The bank declined to comment.

CEFC Shanghai has repayment obligations on 13 bond issues totaling 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 of bonds will come May 21.