According to the report, pouring $9.1 billion into obtaining the stake in the Russian oil and gas company could lead to a substantial increase in CEFC’s Glencore-QIA Consortium debt burden. The deal is heavily (more than 50%) dependent on external borrowings, and therefore can lead to a significant increase in CEFC’s debt, according to China Chengxin Credit Rating Group.
Kommersant’s sources noted that the Chinese company has already made an initial payment for the transaction. One of the sources believes that, if China gives up the deal, it will forfeit a large sum of money to penalties, which can be equal to the down payment itself.
Meanwhile, political issues are exacerbating CEFC’s financial problems. In early March, Chinese media reports said the company’s Chairman Ye Jianming had been detained on suspicion of corruption.
“It is hard to say how seriously politics is involved here. However, considering Ye Jianming’s ties with the special services, his case may be related to (President) Xi Jinping’s campaign to purge the security services, which has been going on for several years now,” said Igor Denisov, a Senior Research Fellow at the Center for East Asian and Shanghai Cooperation Organization Studies.
He stressed that the company pursued an aggressive expansion strategy in foreign markets, and “any failure can be a blow to China’s image, including the flagship One Belt, One Road initiative, which is closely associated with Xi Jinping’s name.”
For his part, Leonid Kovachich, an expert on the Chinese market, noted that CEFC began attracting loans in the so-called shadow banking system in the second half of 2017, often at very high interest rates. Taking into account the fact that the government has recently prioritized the fight against financial risks,
“CEFC’s economic adventurism could not go unnoticed,” he pointed out.