China’s oil deal with Rosneft nixed amid fall of suitor CEFC

Bloomberg

The big, rushed and opaque deal for an enigmatic Chinese energy company to buy into Russia’s state oil behemoth has disintegrated. CEFC China Energy Co.’s agreement last year to purchase a $9 billion stake in Rosneft PJSC came to end as the sellers decided not to proceed with the deal.
Separately, meetings scheduled for investors holding 15.1 billion yuan ($2.4 billion) in bonds issued by unit CEFC Shanghai International Group Ltd. were postponed, according to people at several underwriters, who asked not to be identified and were unable to explain the reasons for the delay. A Shanghai-based spokesman for CEFC didn’t respond to requests for comment.
The collapse is a setback to efforts by Russia’s President Vladimir Putin to deepen strategic energy ties with China amid isolation from US-led sanctions and a slump in oil prices. It also unwinds CEFC’s most high-profile achievement. The sprawling conglomerate rose from obscurity in recent years to become a conspicuous player in global energy through a series of ever-bigger deals across Eastern Europe and the Middle East, mixing with industry stalwarts like Glencore and China National Petroleum Corp.
The Rosneft deal was the peak of CEFC’s rapid rise and the culmination of Chairman Ye Jianming’s efforts to align his business with the overseas political and economic goals of Xi’s “One Belt, One Road” foreign investment initiative. But things began to unravel this year as Ye came under investigation by Chinese authorities and stepped down from management as financial troubles began to emerge.
“The fact that CEFC was unable to close the Rosneft deal was a very unusual situation,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “Given the reported turmoil inside CEFC, putting an end to the drama in a swift manner is good for all parties involved.”
While the deal’s failure may scupper the Kremlin’s aim of China becoming a major Rosneft shareholder, Putin can still take comfort in its success muscling into the prized Chinese energy market over the last five years, pushing aside traditional suppliers Saudi Arabia and Angola and emerging as its biggest crude oil supplier. “Russia is still a convenient and reliable choice for China given their warm political relationship and geographical vicinity,” said Li Li, an analyst at Shanghai-based commodities researcher ICIS-China.
An expansion of an oil pipeline linking the nations opened this year, doubling the capacity that Russia can send directly into the world’s biggest importer. And a massive gas pipeline is slated to start up next year. As well, a five-year deal signed last year to supply CEFC with as much as 12 million tons annually of Russian crude remains in place, according to a
Rosneft spokesman.
“The Chinese market has been, is and will be strategic for the company’s business,” Rosneft’s press service said in a statement. CEFC’s participation in the Rosneft deal marked a departure for Beijing, which has traditionally relied on state-owned CNPC or China Petrochemical Corp., known as Sinopec Group, to take stakes in foreign companies.