Sale of Rosneft Share to CEFC Canceled

Following months of uncertainty after CEFC’s Chairman and Founder, Ye Jianming, was detained by Chinese authorities, a consortium formed by Qatar Investment Authority (QIA) and Glencore have pulled out of selling a 14.6% stake in Rosneft to CEFC.  QIA and Glencore initially acquired the share (19.5%) to assist Moscow and Rosneft in raising funds at a time when the country was facing a cash crunch as a result of low oil prices.

In an unorthodox arrangement, QIA and Glencore allegedly secured a majority of the financing for the deal through a temporary loan from VTB Bank ($11 billion).  Italy’s Intesa Sanpaolo eventually stepped in to provide outside funding for the arrangement and, as collateral, took 14.6% stake in Rosneft for the loan, the very same stake the consortium eventually agreed to sell to CEFC.

Public reporting attributes the CEFC deal falling through to the indebted company not being able to secure financing from Chinese banks and failing to win support from the highest levels of government.  Indeed, CEFC reportedly has 11.8 billion yuan in bonds due this year and recently missed payment of 85 million yuan.

There is still an open question, however, as to the likelihood that CEFC would have brokered such a significant deal implicating China’s most important bilateral relationship without a more transparent understanding of the deal (and the company’s finances) by the same leadership that has now turned on the company.  CEFC has also long been believed to be connected with the PLA and Chinese intelligence services.

The reality is that CEFC has more significant problems than just debt.  Its fortunes (and regard within Beijing) appears to have shifted profoundly around the time of the arrest of Patrick Ho Chi-ping, who was indicted last December by the U.S. Department of Justice for nearly $3 million in bribes to African officials in Chad and Uganda, reportedly to secure business for CEFC.  Ho was Secretary General of the company’s non-profit arm, China Energy Fund Committee (CEFC).

There may be concern in Beijing about the broader implications of Ho’s detainment, including the intelligence that led to his arrest and what might have been learned during the period since.  While it is unclear the extent to which this episode may have led Beijing to distance itself from CEFC, it is likely that the risk appetite of Rosneft in the present environment could not absorb these open questions.