Russia's major privatisation deal of 2017, in which the country's largest oil company Rosneft was to sell a stake to China’s China Energy Company (CEFC), is in turmoil after it appears the Chinese firm doesn't have the money to pay, Bloomberg and Vedomosti daily said on March 13, citing the China Chengxin International Credit Rating agency.
Initially the Russian government claimed that Rosneft sold a 19.5% stake to Glencore and Qatar’s sovereign fund in December 2016 for €10.5bn. However, it later became clear that the money raised was actually a loan.
Subsequently, Rosneft sold a 14.16% stake to China’s CEFC for $9.1bn in September 2017, the biggest ever investment by a Chinese company into a Russian company.
But now reportedly CEFC is having problems financing the deal. Unnamed sources told Vedomosti that CEFC has to pay $1.8bn by April 1, and the remaining $7.3bn by September 2018.
In February Glencore's annual report already suggested that the Rosneft-CEFC deal would be delayed.
Most recently the Slovak-founded financial group J&T said on March 12 that it will pull out of a deal with CEFC until it can give an explanation of where it stands following the recent arrest of its chairman. The latest problems occurred when media reported that CEFC chairman Ye Jianming had been investigated for alleged economic crimes. Ye Jianming has also served since 2015 as an economic adviser to Czech President Milos Zeman.
Beijing is reportedly cracking down on capital movement abroad, especially by private companies like CEFC. That crackdown may have be the reason for a breakdown of a deal between Chinese Fosun and Russian gold miner Polyus last month.
On March 12, Reuters reported that the Chinese company was prepared to pay astronomical annual rates for short-term funding from non-traditional lenders. In January, CEFC borrowed 1 billion yuan ($158mn) 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%, equivalent to an annual interest rate of 36%, said Reuters, citing one person with direct knowledge of the matter.