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Government Pressure Could Cancel CEFC-Rosneft Deal

Chinese Yuan

Beijing’s investigation into energy giant CEFC has significantly affected the acquisition deal for an almost 15-percent interest in Russia’s Rosneft, but the talks between the companies have not been cancelled, a company source told Bloomberg, adding that the investigation will lead to the layoffs of up to half of the company’s 30,000-strong staff.

The private Chinese company last year agreed a deal to buy a 14.16-percent interest in Russia’s Rosneft for more than US$9 billion. At the time, the news raised quite a few eyebrows as the more logical candidate for a hefty stake in such a large company would be a state oil and gas player.

Yet CEFC, it appeared, had Beijing’s favor. The company is the largest private energy business in China and has been investing heavily both at home and abroad, including projects in Central Asia, Eastern Europe, and the Middle East. At home, the company has been buying and building oil storage capacity. CEFC has even been entrusted with storing part of China’s strategic petroleum reserve. Besides its energy business, CEFC is also active in financial services and online insurance.

The tables turned earlier this year, when the authorities launched an investigation into the company’s management, and more specifically its head, Ye Jianming, who has since stepped down. The investigation is reportedly part of a wide crackdown on illicit business practices that earlier cost the top man of a leading insurance company his job.

Now, according to the source, CEFC has begun looking into divestments, picking its real estate business and a brokerage first. Chinese Citic Group has already agreed to buy a 49-percent stake in CEFC’s European operations and there is a possibility that Citic will also snap CEFC’s oil operations in the UAE. If the pressure continues, the Rosneft deal might fall through eventually, despite the evident willingness of the sides to see it through.

By Irina Slav for Oilprice.com

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