CEFC China Energy Backs Russia’s Return to the London Stock Exchange through Investment in EN+ Group’s Upcoming IPO

On October 6, 2017, Singapore-based AnAn Group reached an agreement with Russian energy and commodities firm, EN+ Group, to take one-third of the company’s upcoming $1.5 billion initial public offering (IPO) on the London Stock Exchange (LSE) in November. Notably, AnAn Group is the subsidiary of AnAn International which was (up until last month) previously known as CEFC International, thus making the entity a sister company of the elusive and opaque Chinese conglomerate CEFC China Energy.

AnAn’s participation marks a significant vote-of-confidence for the EN+’s IPO — the first such offering of a Russian company on the London exchange since the U.S. and EU  sanctions on select Russian entities in 2014.  The $500 million deal marks another significant milestone in what is becoming an increasingly close economic partnership between Russia and China.  Although media sources indicate that the agreement was made at a “corporate-to-corporate” level, the deal has the backing of the Kremlin and the financial support of China Development Bank, Beijing’s state policy financier.

EN+ is owned by parent firm Rusal which is listed on both the Moscow and Hong Kong exchanges.  EN+ and its controlling shareholder Oleg Deripaska are not subject to Western sanctions and have thus continued to grow their international commercial relationships.  CEFC’s funding for the IPO is a clear indication that Beijing plans to actively assist Russia’s return to G‑7 capital markets and “normalize” Moscow’s business ties with the West, despite the ongoing Russian-sponsored violence in eastern Ukraine and the continued annexation of Crimea. Indeed, there are some reports that Chinese companies or banks may even step in to offset funding shortfalls for the highly controversial Nord Stream 2 pipeline project.

The valuation of Russian energy firm at the LSE, is estimated to reach around $8-$10 billion.

The listing of EN+ is, in and of itself, a litmus test for investor sentiment towards Russia as relations between Moscow and Washington continue to deteriorate.   As mentioned, the hydropower company is owned by the well-connected Russian oligarch, Oleg Deripaska, who is also the primary shareholder of Russia’s primary aluminum producer, Rusal.   EN+ holds 48% equity in Rusal – a stake worth approximately $5.8 billion.

Just a month prior to this IPO contribution, CEFC acquired a 14.16% stake in state-owned oil company, Rosneft, through a $5.1 billion short-term loan raised through VTB Bank, Russia’s second largest lender.  This deal was one of the largest investments in Russian energy assets by a Chinese company, but proved controversial due to the lack of transparency surrounding the deal.  These latest large-scale energy deals mark the continuation of a trend that has seen CEFC emerge from relative obscurity to be a major player in Russia-China economic and financial relations.

Interestingly, CEFC initially came on the scene with a flurry of acquisitions in the Czech Republic, where it has established a regional headquarters and close high-level political relationships.

Below are IntelTrak visuals demonstrating the (independent) growing global footprints of CEFC (Figure 1) and Rusal (Figure 2):