Alerts. Real-time analysis of events occurring at the intersection of economics, finance and global security concerns.

On November 22, Reuters reported that China CEFC Energy, a company facing a growing list of allegations of corruption, political influence-peddling and opaque ties to the Chinese state (including the People’s Liberation Army), was in negotiations to purchase a major stake in an important media company serving the Czech and other Central and Eastern European markets.  The stake in Central European Media Enterprises (CME), which is being purchased from Time Warner, includes arguably the most influential television station in the Czech Republic.

CEFC’s bid reportedly comes in partnership with Czech-Slovak financial group, Penta Investments, which, itself, has been alleged to have an opaque governance structure with ties to Russia and has been accused of using corrupt means and political influence to make strategic gains within the region (most notably as described in Slovakia’s “Gorilla” wiretapping scandal that emerged in 2012).  Penta Investments is already a player in the print and online media industry in the Czech Republic and Slovakia.

The transaction raises a troubling array of concerns highlighted by the prospect of two companies under the alleged influence of China and Russia, each with track records of reportedly seeking to influence foreign (or in the case of Penta, their own) governments, taking a position of major influence over one of the Czech Republic’s most important TV stations, TV Nova.  The purchase comes in a window when the station is expected to play an important role in the Czech presidential election in January 2018.

In the case of CEFC, questions about its underlying motivations and history of using its assets and network to influence foreign officials came to a head last week, when the U.S. Department of Justice arrested the Secretary General of the company’s non-profit arm, China Energy Fund Committee, for leading a multi-million dollar bribery scheme in Africa designed to secure investment opportunities for an unnamed firm presumed to be CEFC.

CEFC has a history in the Czech Republic, specifically, emerging aggressively on the scene in 2015 with a string of investments in the country and a decision to open a regional headquarters in Prague when the company was still a relatively obscure player.  The appointment of the company’s Chairman Ye Yianming as a senior advisor to Czech President Milos Zeman, however, raised CEFC’s profile and, for many, sounded alarm bells that the company may be motivated by political and strategic objectives, rather than exclusively commercial ones.  Since then, CEFC has become a major global player with massive Chinese political backing, demonstrated by its taking a 14% stake of Rosneft in a move that significantly advanced Russia’s and China’s bilateral economic relationship (particularly in the energy sector).

Penta Investments was founded in 1994 and, as of 2014, held assets estimated at €6.7 billion.  Three of the five Czechs and Slovak founders are alumni of the Moscow State University of International Relations and, in August 2009, the chief of Poland’s National Security Bureau (BBN) accused the firm of cooperating with Russian secret services and of having capital with an unclear and opaque origin.  He noted that the former head of the communist Czechoslovak secret police (StB) was involved with the company.  In August 2015, Penta Investments wholly acquired media group Verlagruppe Passau, which controls Czech newspaper publisher Vltava-Labe-Press (VLP). VLP publishes 73 dailies under the local “deník“ brand, as well a number of weeklies and periodicals totaling one hundred publications.

For Time Warner, the sale is reportedly on the table as a result of AT&T’s takeover of the firm, as agreed to last October.  Bids are expected to be submitted more formally for CME sometime around mid-December.  CME’s sale is reportedly driven by a debt burden that has constrained the company’s operations.  According to the article, “Time Warner has a 46.5 percent voting share in CME, but, on a fully diluted basis, the U.S. group has a 75 percent interest in CME, based on warrants exercisable until May 2018.”

At this time, Time Warner and U.S. authorities do not appear to have considered the risks to allied security interests of this deal proceeding as planned.  Permitting CME and Czech TV Nova to be transferred from a U.S. shareholder to entities with such strategic associations with Beijing and Moscow would be a dangerous development for the region and a tragic failure of security-minded screening.