CEFC Unit with Ownership in Rosneft Is Partially Acquired by State-Owned Chinese Distressed Asset Manager, Huarong Asset Management

On March 9, Beijing News reported that business filings from December 2017 and February 13, 2018 indicated that Chinese state-owned China Huarong Asset Management Company, a major manager of distressed assets, purchased a 36.2% stake in CEFC Hainan International in two separate tranches.  The acquisition was confirmed by records of a $1.5 billion capital injection by subsidiary China Huarong Ruitong Equity Investment Management into the CEFC unit.  An unidentified China Huarong official indicated to Chinese financial publication, Caixin, that the equity purchase was in fact a debt-for-equity swap ordered by the government – a claim that was publicly denied by CEFC.

CEFC Hainan International is the subsidiary of elusive Chinese conglomerate CEFC China Energy through which the company is acquiring a 14.2% stake in Russian energy major, Rosneft.  According to state media sources, China Huarong’s acquisition of the CEFC unit would effectively grant the Chinese government control over the $9.1 billion equity acquisition – a revelation that is being approached cautiously by Russian media. 

Per the September 2017 agreement, CEFC joined a consortium of companies comprised of Switzerland’s Glencore and the Qatar Investment Authority.  CEFC was to buy shares of the Russian oil major at a 16% premium to the 30-day volume weighted average price of Rosneft shares, a lucrative offer that was widely reported on for its lack of transparency.  The deal is positioned to become the largest Chinese investment in a Russian state-owned entity, making the Chinese conglomerate (and, now, the Chinese government) the third largest shareholder in the Russian energy major.

China Huarong is China’s largest distressed asset manager, controlled by state-owned China Life Insurance and part-owned by China’s Ministry of Finance.  Earlier this month, Shanghai’s municipal government seized control of debt-ridden CEFC China Energy through its portfolio and investment agency, Shanghai Guosheng Group, becoming the second Chinese private enterprise to be taken over by the government.  The takeover appeared to be a culmination of CEFC’s debt accumulation and new accusations by the state of economic crimes committed by the company’s chairman, Ye Jianming, who is currently under investigation by Beijing.

The Rosneft deal is still subject to regulatory approval.