Caixin
Jun 02, 2018 05:09 AM
FINANCE

China Energy Reserve Default Rattles Underwriter Barclays

China Energy Reserve has a total of $1.8 billion of offshore debts that are on the brink of default. Photo: VCG
China Energy Reserve has a total of $1.8 billion of offshore debts that are on the brink of default. Photo: VCG

A senior manager in charge of Barclays Bank’s China bond business stepped down as the investment bank tries to “distance itself from” China Energy Reserve and Chemicals Group, an industry source close to the matter told Caixin.

China Energy Reserve missed repayment of three-year dollar bonds that matured May 11. Although the company paid interest to bondholders in following weeks, it announced a default on the $350 million principal on May 25 in a regulatory filing in Hong Kong, citing a “liquidity crunch.”

The default sparked fears of further defaults as the company said the missed payment triggered cross defaults of five other debt securities that were due to mature. Bloomberg data showed that China Energy Reserve has a total of $1.8 billion of offshore debts that are on the brink of default.

As China Energy Reserve’s default risks emerged, Royston Quek, head of Greater China Debt Capital Markets business at Barclays, left the bank after three years in the position. Barclays was the underwriter of five of China Energy Reserve’s outstanding offshore bonds, including the defaulted issue, market documents showed. Other underwriters of the bonds include Wing Lung Bank, CLSA Securities, China Securities and Pudong Development Bank.

Industry sources linked Quek’s departure with China Energy Reserve’s default as he was in charge of the bank’s bond underwriting business with China Energy Reserve, separate sources said.

“Barclays has made clear distance with China Energy Reserve; it has had no business with it,” said an executive from a bond investment institution.

But Barclays spokeswoman Angie Tang told Caixin via telephone Wednesday that there was no link between Quek’s departure and the China Energy Reserve crisis, saying such a link is “unbelievable.” Barclays made no official statement on the matter. Tang said the bank is awaiting further updates by China Energy Reserve on the bond issues. 

Caixin was unable to reach Quek for comment.

China Energy Reserve in early March issued $150 million of bonds in South Korea to raise funds for debt repayment, according to Lin Jianbang, president of China Energy Reserve’s trading unit. Bloomberg data showed that the bond, with a six-month maturity, was set to yield 5.55%. As of May 30, five South Korean financial institutions also held 115 billion ($107 million) won of commercial paper issued by China Energy Reserve, according to Bloomberg.

China Energy Reserve last November led an investor consortium to offer a record $5.2 billion for Hong Kong’s fifth-tallest skyscraper, The Center. The same month, the company launched a $348 million hostile takeover of the Australian energy concern AWE Ltd. But the company later backed out of both deals amid concerns over funding issues and tighter regulatory scrutiny of overseas investment.

Established in 2010, China Energy Reserve has businesses principally in the oil-and-gas industry, according to the company website. As it pursued overseas investments and bond sales, China Energy Reserve identified itself as a major state-owned company with central government backing.

An investor told Caixin that companies with the perception of government backing are highly welcomed in the Hong Kong market, and private banks are especially willing to promote such companies to investors.

But little information about China Energy Reserve’s shareholding and financials is available publicly, and its ownership and management have remained opaque.

On May 25, China Energy Reserve updated its shareholders information, indicating that one of its two shareholders, China Energy Reserve Shanghai, sold a 90% stake to Guoneng Natural Gas Import & Export Co., a unit controlled by state oil major CNPC.

China Energy Reserve Shanghai was previously wholly owned by China Energy Reserve itself, business registration records show.

In documents for investors, China Energy Reserve said its Chairman Chen Yihe was a veteran of CNPC, filling posts in CNPC subsidiaries including Petroleum Pipeline Construction Engineering Group and CNPC Emerging Energy Industry. A number of executives on China Energy Reserve’s management team also have worked at CNPC, according to the documents.

Chen, 55, was chairman and legal representative of China Energy Reserve but holds no stake in the company, according to Shenzhen-listed Jinhong Holding, an affiliate company of China Energy Reserve. Chen is also chairman of Jinhong and holds a 21.4% stake in Jinhong, a Beijing-based gas distributor.

But on May 17, China Energy Reserve said it replaced Chen as its legal representative with a person named Zhu Ning.

Contact reporter Han Wei (weihan@caixin.com)


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