China's CITIC pays CEFC’s debt, will take over stake from J&T

China's CITIC pays CEFC’s debt, will take over stake from J&T
Before its current troubles, CEFC was rated one of China's top 10 private enterprises.
By Jaroslav Hroch in Prague May 27, 2018

Czech and Slovak financial group J&T Finance Group (JTFG) and Chinese state conglomerate CITIC have reached a deal over the troubled Czech-based division of conglomerate CEFC China Energy.

JTFG announced it has sold the outstanding debt of CZK11.5bn (€446.3mn) to Rainbow Wisdom, which is controlled by CITIC, and will return the seized assets and call off the crisis management team it installed.

J&T Private Investments (JTPI), a creditor under JTFG, had installed the crisis management at CEFC Europe on May 17 because the Chinese company had failed to pay back its debt in time.

CEFC had invested heavily in Central and Eastern Europe, but the private Chinese company was plunged into crisis this spring when it was revealed that the company was in financial difficulties, followed by the news of a probe into its chairman Ye Jianming. In May, CEFC Shanghai International Group, part of troubled China CEFC Energy, missed bond payments totalling 2.09bn yuan ($327.3mn), blaming Ye Jianming’s failure to “fulfil normal responsibilities”. JTFG

The crisis also led to expectations that several deals announced in countries including Romania and Russia as well as Czechia could collapse. However, the dispute surrounding CEFC’s Czech-based division has been resolved relatively quickly. 

“The partial rigmaroles were caused by the lawyers. The takeover of debts was finalised. This means that CITIC Group controls all assets of CEFC Europe,” said Vratislav Mynar, the Czech president's chancellor, who is seen as an influential pro-Russian and pro-Chinese figure.

The next move, according to Mynar, is to negotiate a deeper co-operation with CITIC in Czechia. Moreover, JTFG and CITIC representatives agreed on holding future talks about possible collaboration and joint projects. After approval by a regulator, they want to mutually appoint, in a reciprocal way, representatives to CITIC and JTFG.

JTFG looks confident following the latest development. It is clear that CITIC Group has been taking steps to take a 49% stake in CEFC Europe. Before its troubles, parent company CEFC was looking to increase its stake in JTFG from 10% to 50%.

“It might seem an extraordinary game is underway between JTFG and CEFC over the future investments from China. However, the problems of CEFC China Energy are connected to the issue of how the communist party in China controls and exercises power over Chinese billionaires,” Czech business daily Hospodarske noviny wrote.

In Czechia, CEFC Europe assets include Czech charter airline Travel Service, owner of national carrier Czech Airlines; the brewery Lobkowicz; first division football club Slavia Prague; and hotels and office buildings. Its investment drive was promoted by Czech President Milos Zeman and his inner circle, keen to deal with Beijing.

Although the latest crisis might be over, a crucial question remains unanswered: how stable and beneficial are Chinese investments? Or are they merely a political tool to increase influence in Czechia?