The prices of commodities tend to be more volatile than those of other major asset classes. Moreover, institutional investors have to put up with a variety of market players that are huge but often relatively inscrutable.
Take Glencore. The Financial Times describes the commodity trader’s chief executive Ivan Glasenberg as “one of the great enigmas of the corporate world”. Just days before the Swiss-based firm’s record-breaking listings in London and Hong Kong in 2011 all the major news organisations in the UK received a terse letter from lawyers advising them about the “security risk” in reporting on the private lives of Glencore executives.
Then there is Rosneft, Russia’s biggest oil producer. When it went public in London in 2006, investors were warned against putting their money into a Russian firm that held assets seized from the now-jailed oligarch Mikhail Khodorkovsky.
“The Russian legal regime is opaque and difficult to navigate. We don’t pretend to understand it, and if we cannot understand something, we won’t invest in it,” a fund manager told the Guardian at the time.
Such mysterious reputations haven’t deterred an aggressive Chinese businessman from dealing with both Glencore and Rosneft, however, and earlier this month, CEFC China Energy announced that it was buying a chunk of Rosneft from Glencore and the Qatar Investment Authority.
True to form, public information on the Chinese energy firm and its secretive chairman Ye Jianming is limited. But regular WiC readers might recall that we profiled CEFC and Ye in our first issue this year (see WiC350).
At the time the 40 year-old had just made the cover of Fortune’s Chinese-language edition, with a headline describing him as “the youngest Chinese boss of a Global Fortune 500 firm”, and CEFC was garnering attention for its rapid rise and aggressive overseas M&A – although most of the deals were smaller in nature than the Rosneft swoop. Until this month its biggest investment was buying Prague-based J&T Finance for $1 billion, which made CEFC the first private Chinese firm to own a bank in Europe. But while other acquisitive Chinese firms such as Anbang Insurance and HNA Group have slowed their spending because of regulatory pressure, CEFC has made a quantum leap.
The company was only founded in 2002 but its latest $9 billion investment for 14% of Rosneft, Bloomberg noted, is the biggest overseas oil acquisition by a Chinese firm since state giant CNOOC’s $15 billion takeover of Canada’s Nexen in 2012.
Ye is not done yet. Reuters said his firm is also considering becoming a cornerstone investor in the multibillion dollar IPO of En+, the Russian aluminum-to-power conglomerate. (En+ is another inscrutable energy major. Its unit UC Rusal went public in Hong Kong in 2010 but its former chairman Barry Cheung is now facing trial on fraud charges relating to the Hong Kong Mercantile Exchange, which was founded by Cheung but went under in 2013, see WiC194.)
By establishing business ties with the Kremlin-controlled Rosneft and En+, Ye could be poised to play a bigger role in promoting Beijing’s energy security, with Moscow increasingly considered a key partner.
For instance, under the deal with Rosneft, CEFC will get access to the Russian giant’s oilfields and petrochemical projects in east Siberia, close to the border with northeast China.
Moreover, CEFC’s investment comes at a time when international sanctions have hampered Russia’s ability to secure larger amounts of overseas investment (the deal was announced just days after a visit to China by Vladimir Putin).
Most analysts question whether CEFC can really be classified as a private-sector firm operating independently of state directives.
“The rise of Shanghai-based CEFC China Energy has unfolded in sync with China’s economic push into Central Asia and Eastern Europe amid growing cooperation with Russia in matters ranging from disputed Asian islands to the conflict in Syria,” the Financial Times said, describing Ye’s firm as “a little-known company linked to the People’s Liberation Army”.
The newspaper noted that Ye once worked for the China Association for Friendly International Contact, an outreach arm for the PLA; and corporate filings in Singapore have also revealed that he once headed a PLA-linked oil trader that imported Iranian oil.
There have been conflicting reports on Ye’s family background, although he has rebuffed suggestions that he’s related to the late Ye Jianying, a PLA marshal and one of the Chinese Communist Party’s ‘Eight Immortals’.
According to a report by Beijing News, which sent reporters to interview Ye’s relatives in Fujian, his home province, Ye’s father and grandfather weren’t prominent figures but both worked as boatmen for small shipping firms based in Fujian’s Jian’ou county.
That was also the place where Ye Jianming started out as a businessman by taking over a state-run piston factory.
His big break came in 2006 when he somehow won an auction for an oil trading firm previously owned by Lai Changxing, who for many years was China’s most wanted fugitive (see WiC117).
Yet even still, the extraordinary rise of CEFC has domestic commentators comparing the company with Anbang, an insurer backed by a number of hongerdai (red princelings) including Wu Xiaohui, the grandson-in-law of Deng Xiaoping.
“CEFC is becoming the new Anbang,” was the headline on a widely forwarded article on WeChat, noting that CEFC, similar to Anbang in the past, has been given a full range of financial licences. (By calling it a ‘new Anbang’ the author seems to be indicating shared characteristics: as in the case of the insurer it rapidly came to prominence after a flurry of local and overseas acquisition that were backed by access to vast pools of capital. In both cases there is speculation about which political figures are really pulling the strings.)
Many of CEFC’s plans wouldn’t be feasible without a helping hand from the leading state banks. CEFC has a Rmb30 billion ($1.95 billion) credit line from China Development Bank, for instance, and Reuters has reported that CEFC tapped the same policy bank to help fund the Rosneft deal.
No matter who is backing CEFC, Ye has been making a lot of new friends. On the company’s website, there are photos of him with many prominent people, such as Alan Greenspan and Henry Kissinger. He may have just added Ivan Glasenberg and Vladimir Putin to his besties collection.
Ye appears to be forging ties with China’s richest man as well. According to the domestic newspapers, China Evergrande’s chairman Xu Jiayin has just overtaken internet titans Jack Ma and Pony Ma as the country’s wealthiest tycoon, following a five-fold jump in the developer’s share price in Hong Kong this year.
The rally has been fuelled by expectations that Evergrande will soon complete a lucrative listing in the A-share market.
The connection here? A financial unit of CEFC is one of the eight strategic investors that bought a Rmb30 billion pre-IPO stake in Evergrande earlier this year.
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