CEFC dished out for loan

GIANT IN DISTRESS::Sources said the China-based global energy conglomerate in January took out a 15-day bridge loan at 0.1% interest per day as trust in the firm dissipated


Tue, Mar 13, 2018 - Page 11

CEFC China Energy (華信能源), a once-acquisitive conglomerate, was prepared to pay annual rates of as much as 36 percent for short-term funding in a sign of the cash crunch faced by the company as authorities were closing in on its chairman, multiple people with knowledge of the matter said.

Earlier this month, it was revealed that CEFC chairman Ye Jianming (葉簡明) had been investigated for suspected economic crimes.

Guosheng Group (國盛集團), an investment firm owned by the Shanghai government, was tasked with evaluating CEFC’s financial position as part of a restructuring and takeover process, according to two sources with knowledge of the moves.

However, from at least the second half of last year, CEFC was approaching shadow bankers — non-traditional lenders — for costly short-term loans, in a sign of the strained liquidity the company was facing, six sources with direct knowledge said, speaking on condition of anonymity.

In early January, CEFC borrowed 1 billion yuan (US$158 million) from Shanghai-based Bida Holding Group (必達控股集團), also known as U.Trust Holding Group, for a 15-day loan with a daily interest rate of 0.1 percent, equivalent to an annual interest rate of 36 percent, one person with direct knowledge of the matter said.

The company also approached Shenzhen Qianhai Everbright Financial Holding Investment Management (深圳前海光大金控), Zhejiang-based Wanxiang Trust (萬向信託) and Hebei-based Bohai International Trust (渤海國際信託), a unit of HNA Capital (海航資本集團), for expensive loans, people with direct knowledge of each respective company said.

Qianhai Everbright and Bohai International Trust were tapped for merger-and-acquisition funds to finance deals, while Wanxiang was approached for money for corporate financing.

None of the companies lent to CEFC for reasons ranging from concerns over liquidity and opaque ownership to difficulties appraising asset value and timing issues, trust sources said.

The rates of interest discussed was unclear, but annual rates on short-term trust loans can be as high as about 12 percent, the sources said.

CEFC said the information of its expensive loans mentioned in the story is “not correct,” without giving further comment.

Guosheng, the Shanghai government, Bida, Qianhai Everbright and Bohai International Trust did not respond to requests for comment. Wanxiang Trust declined to comment.

“CEFC has no cash and is solely relying on outside money” to keep the company running, said one of the people, who has knowledge of CEFC’s debt situation. “It remains a question how it’s going to repay all the debt coming due.”

The Shanghai-based conglomerate has about 44 billion yuan of short-term borrowing due by the first half of the year, according to its half-year financial report disclosed last year to onshore bondholders.

Its total debt amounted to 117 billion yuan at the end of June, compared with total assets of 169 billion yuan. It reported a net profit of 4.5 billion yuan in 2016.

Trust lending in China is not as tightly regulated as bank activity, allowing trusts to charge higher rates of interest to borrowers that might struggle to access more traditional forms of finance.

“Paying ultrahigh interest rates is a sign of intense demand for cash,” Orient Capital Research managing director Andrew Collier said. “Clearly, the leadership in Beijing is putting pressure on CEFC to raise funds quickly to reduce its debt load or pay off specific creditors, such as state-owned banks.”

CEFC’s single largest source of financing has been China Development Bank (CDB), which was also expected to play a large role in funding CEFC’s US$9.1 billion purchase of a 14.16 percent stake in Rosneft, the Russian oil major, announced last year.

Nomura, one of the banks initially tapped for finance, was later told to step down as CEFC was set to raise US$5.1 billion in short-term loans from Russia’s second-biggest lender, VTB, according to a separate source with direct knowledge of those discussions.

CEFC was in separate talks with CDB to later refinance the short-term bridge loan being offered by VTB, Reuters reported at the time.

CDB and Nomura did not respond to requests for comment.

CDB president Zheng Zhijie (鄭之杰) last week said that the bank was not involved in financing the Rosneft stake purchase by CEFC.

“We have not received an application seeking financing, how can we start considering?” he told Reuters.

Asked how CEFC has performed over its current loans to CDB, Zheng said: “So far they’ve made all repayments on time.”

CEFC Shanghai International Group (上海華信), a subsidiary of the group, has bonds worth 10.1 billion yuan maturing this year, Reuters data showed.

In addition, bondholders will be able to exercise options to sell an additional 3 billion yuan of bonds back to the company in December.

China Lianhe Credit Rating Co (聯合資信), a domestic credit ratings agency, earlier this month downgraded CEFC Shanghai following media reports of an investigation into the chairman of its parent company.

Trade in five bonds issued by the company with a total value of 14 billion yuan has been suspended since March 2.