Streetwise Professor

March 12, 2018

Into the Rosneft Black Hole–And No, I Don’t Mean an Oil Well

Filed under: China,Energy,Russia — The Professor @ 9:36 am

If you didn’t think the Rosneft-Glencore-QIA-Intessa-CEFC deal could get more bizarre–WRONG! Today Reuters reports that during the period of time that Chinese Firm of International Mystery CEFC agreed to buy a 14.6 percent share in Rosneft from whom it was parked initially–Glencore and QIA, funded by Intessa Saopaolo and ???–it was paying loan-shark rates to secure short term financing:

But from at least the second half of last year CEFC was approaching shadow bankers – non-traditional lenders – 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, CEFC 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.

And, of course, it was recently revealed that the head of the CFIM–Ye Jianming–is under investigation for “economic crimes.” And an arm of the government of Shanghai has taken control of CEFC Energy–the part of the convoluted group that actually agreed to buy the Rosneft shares. Given the news relating to CEFC’s desperate need for funds in the shadow banking market, this now is quite clearly a shadow bailout.

More puzzles: at the time the deal was announced CEFC made a “huge” initial payment. To whom? Where is the money now? Glencore states that it anticipates the deal will close in the first half of 2018–meaning that they haven’t been paid.  Intessa says “no problema! The deal will-a get-a done!” Meaning it hasn’t been done and they are still on the hook.  The Qataris of course say nothing.

So where’s the money? Show me the money!

Some great due diligence by all involved, no? Sell out to a virtually unknown company with the creditworthiness of a busted racetrack punter. No doubt everyone was too anxious to get out to look too closely at the buyer, and perhaps they took it for granted, or on faith, or something, that CEFC was really a stalking horse for the Chinese government, and so no worries!

The Rosneft “privatization” has been opaque since day one.  And no surprise, as it involves a convergence of the most opaque entities on the planet: Russia, China–specifically a virtually unknown Chinese conglomerate with apparent ties to the Chinese security apparatus–Middle East investors, and a Swiss commodities firm.  Have them walk into a bar, and you have the beginnings of a great joke. Put all these together, and you get a black hole from which no light can possibly emerge.

And I say again: the one entity that should be shedding light because it is a listed public company in the UK–Glencore–provides little more information than the other conspirators involved in this drama.  The FCA should be all over Glencore like flies on cow pies. But it isn’t–although the recent Beaufort Securities scandal suggests its lassitude should be no surprise.

So what happens next? I have no idea. But whatever happens, there’s no guarantee that the world at large will know what actually happens, given this lot of opaque–and unaccountable–participants.


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  1. The whole UK government is too busy washing their clothes and trying to turn a blind eye to the Russians. Fourteen murders by the FSB and the response is…..”Vlad, would you mind turning over the usual suspects?” Honestly, what would the FCA do to Russian money other than welcome the investments in London real estate.

    Comment by The Pilot — March 12, 2018 @ 5:25 pm

  2. SWP, I gotta ask. Do you have some sort of moral objection to formatting em-dashes the way other people do, i.e. double width and perhaps with spacing, to make it easier to distinguish clause-separating punctuation from simple hyphenation? Or does your blogging software just not support it?

    Comment by Sam — March 12, 2018 @ 5:31 pm

  3. I see that VTB was a 5.1byn creditor to CEFC, probably with some seniority. This certainly looks like a domestic recapitalization of Rosneft, with I’m sure some Chinese money getting lost along the way.

    Comment by dh — March 12, 2018 @ 7:04 pm

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