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Exclusive: China's CEFC was scrambling for loans as authorities swooped

Reuters  |  HONG KONG/SHANGHAI 

By Julie Zhu and Engen Tham

HONG KONG/(Reuters) - Energy, the 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, according to multiple people with knowledge of the matter.

Earlier this month it was revealed that Ye Jianming, the company's chairman, had been investigated for suspected economic crimes. Guosheng Group, an investment firm owned by the 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.

But from at least the second half of last year was approaching shadow bankers - - for costly short-term loans, said six sources with direct knowledge, in a sign of the strained liquidity the company was facing.

In early January, borrowed 1 billion yuan ($158.00 million) from the Shanghai-based Bida Holding Group, 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, said one person with direct knowledge of the matter.

The company also approached Shenzhen Everbright Financial Holding Investment Management, Zhejiang-based and Hebei-based Bohai International Trust, a unit of HNA Capital, for expensive loans, said people with direct knowledge of each respective company.

Everbright and were tapped for M&A funds to 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. However, annual rates on short-term trust loans can be as high as around 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 government, Bida, Everbright and did not respond to requests for comment. 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."

DEBT DUE

The Shanghai-based conglomerate has around 44 billion yuan ($6.94 billion) of short term borrowing due by the first half of 2018, according to its 2017 half-year financial report disclosed to onshore bondholders.

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

Trust lending in is not as tightly regulated as activity, allowing trusts to charge higher rates of interest to borrowers who may struggle to access more traditional forms of

"Paying ultra-high interest rates is a sign of intense demand for cash," said Andrew Collier, of Research.

"Clearly, the leadership in is putting pressure on CEFC to raise funds quickly to reduce its debt load or pay off specific creditors, such as state-owned banks," said Collier.

CEFC's single largest source of financing has been Development (CDB) which was also expected to play a large role in funding CEFC's $9.1 billion purchase of a 14.16 percent stake in Rosneft, the Russian 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 $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, reported at the time.

CDB and didn't respond requests for comment.

Zheng Zhijie, of CDB, said last week that the was not involved in financing the stake purchase by CEFC.

"We have not received an application seeking financing, how can we start considering?" he told

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, a subsidiary of the group, has bonds worth 10.1 billion yuan maturing this year, according to data. 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., a domestic credit ratings agency, earlier this month downgraded CEFC Shanghai following of an investigation into the of its parent company. Trade in five bonds issued by the company with a total value of 14 billion yuan has been suspended from March 2.

($1 = 6.3290 Chinese yuan renminbi)

(Reporting by and Kane Wu in Hong Kong, in Shanghai and Chen Aizhu in Beijing; Additional reporting by Andrew Galbraith in Shanghai; Editing by Philip McClellan)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, March 12 2018. 12:38 IST
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