Caixin
Apr 09, 2019 06:12 AM
FINANCE

Citic Advances Deal to Buy Czech Assets of CEFC

CEFC China has been in a debt crisis since its founder Ye Jianming was placed under investigation by Chinese authorities. Photo: VCG
CEFC China has been in a debt crisis since its founder Ye Jianming was placed under investigation by Chinese authorities. Photo: VCG

China’s state-run conglomerate Citic Group signed a contract to pay 147 million euros ($165 million) to take over the Czech assets of embattled CEFC China Energy, ending nearly 10 months of disputes with CEFC China’s creditors over the price. But questions on the assets’ value still linger.

Rainbow Wisdom Investments Ltd., a unit of Citic, last week signed the deal with PricewaterhouseCoopers, the liquidator appointed by a court to handle the Czech asset sales, Caixin learned. The final price was nearly triple the amount Citic proposed late last year.

Despite the signing of the contract, several creditors that disagreed with the offer said they plan to contest the deal, which is backed by CEFC China, Citic and the biggest creditor, China Development Bank.

The asset sale is part of the liquidation of CEFC Hong Kong, the unit that controlled CEFC China’s Czech business. Creditors of CEFC Hong Kong have argued that the Czech assets could be worth as much as 530 million euros.

Through CEFC Hong Kong’s Prague-based subsidiary, CEFC Europe, CEFC China’s investments in the European country include Czech charter airline Travel Service, which owns the national carrier Czech Airlines; brewery group Lobkowicz; hotels and office buildings; the machinery company Zdas; and first-division soccer club Slavia Prague. CEFC China also owns a stake in Czech banking and private equity giant J&T.

CEFC China is one the Chinese private conglomerates that amassed sprawling assets abroad over the past few years through debt-backed investments. But the company has been under regulatory and financial pressure since its founder Ye Jianming was placed under investigation by Chinese authorities on suspicion of economic crimes. Caixin reported last year that CEFC China used its complex web of affiliated companies to facilitate fake deals, inflate trade figures and obtain bank loans to fuel its aggressive expansion.

The scandal triggered a series of downgrades in ratings for CEFC China’s units, leading to the abandonment of a bond sale, the freezing of assets by several courts and the collapse of a $9 billion deal to buy a stake in Russian state-owned energy giant Rosneft.

Citic appeared in May as a white knight to rescue CEFC Europe from a takeover by its creditor J&T Private Investment BV, a unit of J&T, after CEFC units failed to repay more than 400 million euros owed to the Czech company. Citic agreed with CEFC China on May 3 to acquire the Czech assets through Rainbow Wisdom and assumed the chairmanship of CEFC Europe in late May.

As part of the bailout, Rainbow Wisdom acquired a 9.9% stake in J&T from CEFC China and repaid 200 million euros ($224 million) of debts to J&T on behalf of CEFC China.

Around the same time, CEFC Hong Kong, the controlling shareholder of CEFC Europe, was sued by creditors in May for missing payments. In July, PricewaterhouseCoopers was appointed by a Hong Kong court as the liquidator of CEFC Hong Kong, and the court ordered the company to liquidate two months later.

In August, the Czech Republic approved the deal without a final price or terms. At the end of 2018, Citic proposed a bid of 40 million euros for the Czech assets. But the deal was not finalized over the following months because of disagreements with CEFC Hong Kong’s creditors, who argued that the price was too low.

But assessing the actual value of the assets has been difficult because of “limited information” and the complex debt network among CEFC China’s units, according to PricewaterhouseCoopers.

In a letter to creditors in late March, the liquidator suggested that accepting Citic’s offer is the only feasible option and said an appraisal valued the Czech assets at around 157 million euros.

Citic warned in early March that it would drop the offer if no contract were signed by the end of the month. In an earlier statement, Citic said if the acquisition didn’t proceed, Citic could demand that CEFC Europe repay the money it provided in the bailout, which would further reduce CEFC Europe’s asset value.

Yan Jun, a board director of CEFC Hong Kong, said the termination of the Citic deal could cause great economic losses to both CEFC Hong Kong and its creditors.

Contact reporter Han Wei (weihan@caixin.com)

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