Strategies and Resources
CEFC China, armed with an in-depth analysis and understanding of the energy demand in the Chinese market, embarked on its strategy of exploring overseas resources. The company is developing itself into a well-organized international investment bank in the energy industry by employing its reservoir of international resources accumulated over the years in international energy cooperation and public diplomacy, integrating its business operations with financial services.
Establishing a Terminal System in Europe for Upstream Oil and Gas Resources
CEFC China has established its foothold in Europe through the acquisition of a controlling stake in KazMunayGas International N.V. (KMGI) to accelerate its industrial deployment of oil and gas terminals as a base for providing stable upstream oil and gas resources, thus laying a solid foundation for the its energy industry system.
Acquiring KMGI to Facilitate Terminal Layout in Europe
CEFC China has acquired over a thousand gas stations and their supporting oil depots in countries including France and Spain, as part of its layout of oil and gas terminals in Europe. On December 14, 2015, in the presence of Chinese Premier and the Prime Minister of Kazakhstan, CEFC China signed an agreement with KazMunayGas (KMG), the national oil company in Kazakhstan, at the Great Hall of the People in Beijing to acquire a 51% stake in KMGI (a subsidiary of KMG), furthering its layout of oil and gas terminals in Europe.
The acquisition enables CEFC China to co-own KMGI’s advanced gas stations and oil depot management system in a number of European countries, an international management team consisting of over 7,000 members as well as large-scale refineries and chemical plants with state-of-the-art technologies, allowing the Company to hold stakes or become a majority shareholder in various European oil companies.
Established in 1974, KMGI is the international platform for KMG and the only channel for Kazakhstan’s oil industry to access the European downstream market through an integrated oil industrial system of refining, storage, logistics and sales.
CEFC China aims to carry out further strategic collaboration with KMG, utilizing Kazakhstan’s sovereign brand value and resources as an oil producing country. The Company will further increase its investment in KMGI and acquire over 10,000 gas stations and supporting oil depots in countries such as Italy, Spain, Romania, Bulgaria, Germany and Switzerland so as to expand its investment layout for European terminals. At the same time, the Company will carry out strategic mergers and acquisitions of major refineries, oil depots and pipelines to enhance its stakes in important logistics nodes for additional upstream rights and interests. In the next 3 to 5 years, the Company plans to develop KMGI into an influential oil and gas terminal supplier.
The downstream market will mainly be in Europe and gradually extend to emerging markets, to be completed with a strategic coverage of the Middle East, Southeast Asia and India. Based on downstream demand, the Company aims to become a major holder of midstream and upstream oil and gas interests in Central Asia as well as Central and Eastern Europe. By building an energy corridor through China, Kazakhstan and Europe, it plans to connect the Chinese market with the upstream resources of Central Asia and the terminals in Europe.
Relying upon Terminals in Europe for Upstream Resources in Central Asia, the Middle East and Africa
It has been the most opportune time to acquire upstream oil and gas rights and equities when their prices are on the low end. Under such circumstances, the Company has focused on investing in this direction to speed up its overseas exploration. As the oil and gas industry is closely connected with geopolitics, the resources of oil producing countries are controlled by the State and therefore do not offer easy access. Through its network of the terminal system in Europe, CEFC China has been able to leverage its global political resources to acquire oil and gas equities, rights and interests in Central Asia, the Middle East and Africa, with Kazakhstan, Abu Dhabi and Chad as key locations.
- Kazakhstan, Central Asia: The strategic collaboration with KMG brings 10 million tons of oil equities of sales from Kazakhstan annually, and the amount is expected to increase. As a national oil company of Kazakhstan, KMGI provides a strong support for CEFC China’s acquisition of quality upstream resources and the building of the exchange and distribution system integrating the Chinese market, upstream resources in Central Asia and terminals in Europe.
- Abu Dhabi, the Middle East: The Company has gained a foothold in Abu Dhabi and expanded oil and gas rights and interests by acquiring 10 million tons of crude oil from Abu Dhabi annually. Through a strategic cooperation agreement with Abu Dhabi, the Company has secured its long-term and stable oil rights and interests, engaged in the exploration of upstream oil and gas in Abu Dhabi, and formed collaboration in energy reserves and open market trading.
- Chad, Africa: In December, 2015, CEFC China signed a Farmout Agreement with OPIC Africa Corporation of CPC Corporation, Taiwan (CPC) for a 35% share of the equities, rights and interests of the latter’s three oil and gas blocks in Chad, enabling a joint exploitation of oil and gas in Chad. Through stakes in CNPC’s H Block project in Chad, CEFC China has also obtained right-to-sell of 5 million tons of crude oil in addition to equity crude oil.
The proved reserves of CPC’s three oil and gas blocks total 105.79 million barrels with expected reserves of 3.3 billion barrels of oil, the production of which is expected to begin in 2017 and can reach over 1 million tons of capacity in the long term. The recoverable reserves of the H Block of CNPC amount to 1.5 billion barrels. The actual output in 2015 reached 2.6 million tons and can rise to 10 million tons in the long run.
Building Large Oil Reserves to Connect Domestic and Global Markets
On the strength of its steady supply of upstream oil and gas resources, CEFC China has established transshipment stations and storage facilities overseas as well as large oil reserve bases in China for developing national strategic reserves and commercial storage. Partnering with centrally-administered and state-owned enterprises in engaging in the energy logistics sector, CEFC China has established key overseas logistics nodes for oil and gas, with a view to building a diversified energy storage and logistics system that integrates domestic and overseas facilities. With its large oil reserves, CEFC China is able to organize an oil reserve exchange mechanism integrating oil reserves in Europe, the Middle East and China, one that connects the global market and increases the Company’s ability to allocate resources more efficiently.
- Europe: In European countries like France and Spain, CEFC China owns an oil storage and logistics system of one–million-ton capacity that supports its refining system and sales terminals.
- The Middle East: CEFC China is cooperating with Abu Dhabi and Fujairah in the construction of oil transshipment and storage facilities.
- Central Asia: Cooperating with energy logistics companies like Kazakhstan DGT and Petroleum LLP, CEFC China is establishing oil and gas reserves in Kazakhstan.
- Port of Yangpu, Hainan, China: Designed with a total capacity of 12 million cubic meters, the Yangpu Oil Storage Base has seen the completion of its first phase, an oil depot with a capacity of 2.8 million cubic meters.
- Port of Rizhao, Shandong: Designed with a capacity of 10 million cubic meters, the first phase of the oil storage facilities project covers an area of 1,500 mu (1 square kilometers) on which a light crude oil reserve base is planned with a capacity of 4.6 million cubic meters. Scheduled for completion in June 2016, the oil storage base under construction is designed to hold 600,000 cubic meters. A supporting oil terminal of 300,000-ton capacity is also under construction. CEFC China has also jointly established a utility tunnel company with Rizhao Port Group to build utility tunnels from the terminal of Lanshan Port to the west section of the Lanshan Chemical Industry Park.
- Dongjiakou Port of Qingdao, Shandong (being planned): CEFC China has invested in the oil reserve base project at Dongjiakou Port, acquired shares in the second crude oil terminal with a capacity of 300,000 tons at Dongjiakou, and established a joint venture with the Port of Qingdao (Group) to develop a third crude oil terminal with the same capacity.
- Zhuhai, Guangdong: the oil reserves (with a designed capacity of 600,000 cubic meters) and terminal project in the Gaolan Port, Zhuhai, is in preparation for construction.
- Jingjiang, Jiangsu: the oil products depot, with a capacity of 520,000 cubic meters and a shipping terminal, has been put into use.
- CEFC China is also planning on acquiring completed reserve depots along China’s coastal areas to further improve the Company’s domestic reserve deployment.
Developing Energy Logistics in Cooperation with State-Owned Enterprises
CEFC China has set up joint ventures with state-owned storage and logistics enterprises including China Railway Corporation (CRC), State Reserves Bureau (SRB) and China State Shipbuilding Corporation (CSSC) to cooperate in oil and gas storage and logistics and invest in key logistics nodes and reserves to increase the reserves turnaround. In partnership with CRC and important ports including Yingkou Port, Rizhao Port and Qingdao Port, and connecting with the railway logistics network of Central Asia, CEFC China creates an interconnected system of sea transport, port reserves and inland railway transport, making the West Pacific Ocean-China-Central Asia-Europe railway transportation route a possibility. Combined with its domestic oil reserves system along major rivers and coastlines, CEFC China is able to integrate the onshore reserves of China, Europe and the Middle East with floating storage units in Singapore and Southeast Asia, establishing a stable and interconnected land-sea logistics system of oil and gas.
- CEFC China has established three joint ventures with China Railway Corporation to jointly transport oil and gas as well as lubricants via the rail system. By connecting the world’s largest railway transport system of China Railway Corporation with energy logistics companies like Kazakhstan DGT and Petroleum LLP that were acquired by the Company, CEFC China will be able to store and transport hazardous goods, lubricants and natural gas between China and Central Asia via railway, thus creating an oil and gas transport line between China and Kazakhstan that runs through Xinjiang and Inner Mongolia, with an aim to creating an onshore energy logistics network from China to Europe.
- CEFC China has cooperated with Guangdong Material Reserve Administration (GMRA) in the wholesale, retail and warehousing of oil products, especially in the storage, purchase and replacement of oil products in national reserves. The two sides have also jointly set up a fund to invest in reserves and logistics facilities. CEFC China has acquired controlling stakes in oil products depots and other remnant assets of GMRA nationwide, and further acquired key oil depots in coastal areas, which has contributed to forming a pattern of partial rotation between national reserves and supply to the market.
- CEFC China has acquired warehousing assets along the railways together with CRC. Through joint ventures with GMRA, CEFC China has connected railway transportation with the oil products depots, integrating storage and transportation. The Company also conducts online trading of crude oil replaced from the reserve depots to improve operation efficiency.
- CEFC China has cooperated with Yingkou Port, Rizhao Port and CRC to connect with the logistics services in Central Asian countries such as Kazakhstan to form a reserve and logistics system that combines port reserves and inland railway transportation with a view to integrating the inland logistics of China, Central Asia and Europe.
- CEFC China has cooperated with CSSC in commercial floating storage with Singapore as the base. The Company has built three floating tankers in Singapore and other Southeast Asian countries, and six more will be added in future.
- CEFC China has cooperated with such state-owned enterprises as Yunnan Provincial Energy Investment Group, Shandong Energy Group and Jizhong Energy Group in projects in respect of gas stations and other key logistics nodes.
Processing and Oil Products Export
As China is now allowing more refineries to use imported crude oil and to apply for import licenses, the oversupply of refined oil products has intensified in the Chinese market. The export rights to refined oil products will be opened up further. With its upstream resources and reserves, CEFC China is able to process materials via Chinese refineries and export refined oil products to Southeast and South Asia.
- CEFC China has cooperated with China National Chemical Corporation (ChemChina) by acquiring stakes in its top-rated refineries to jointly carry out material processing.
- CEFC China has cooperated with CPC Corporation, Taiwan, to process materials with CPC’s refineries and to export refined oil products to Southeast Asia. It also plans to relocate those refinery facilities to Cambodia for processing operations.
Building Teams of Independent Traders
Over the years, CEFC China has built teams of independent traders who are most professional and experienced in the international trading of crude oil, oil products, natural gas, and petrochemical products. They are also skillful at organizing and implementing the construction of, as well as managing the processing facilities.
Operation and management of the processing and storage facilities, logistics terminals, sales networks, commercial oil storage bases for crude oil products, finished oil products and crude oil terminals. In the meantime, by acquiring KMGI, CEFC China has also recruited and retained its internationalized professional teams of over 7,000 members from the oil and gas industry. As the company continues acquiring upstream equities and resources, it spares no effort in building and integrating teams of independent traders to interlock its internal strength and the outside market and further optimize the allocation of upstream and downstream equities and resources.
Obtaining Full Range of Financial Licenses to Serve Corporate Strategies
Engaging in the capital-intensive oil industry requires large sums of capital. Aware of this situation, Chairman Ye Jianming has devised a two-pronged industry-cum-finance development approach by effectively combining the company’s energy business with its financial services. He has put forward a strategy of building a diversified financial services system by acquiring and establishing financial services platforms and obtaining full financial licenses with a view to using the company’s own robust financial system to promote the company’s energy development strategy.
Financial Services with a Full Range of Licenses
With its important financial platforms for securities, trusts, futures, banking, insurance and financial asset transactions, CEFC China has set up financial services companies focused on finance, funds and financial leasing. The Company has also launched a buyout fund with major financial institutions from China and abroad to establish channels for diversified and stable capital sources, and is trying to promote its corporate strategy to securitize its assets through financial innovation. At the same time, by making full use of big-data resources and online financial tools, CEFC China is integrating its resources in the energy industry with diversified financial services to further enhance its profitability and resource allocation capability.
Acquiring a 50% Stake in J&T Finance Group
With the acquisition of a 50% stake in J&T Finance Group, CEFC China is able to gain low-cost capital from abroad to serve its corporate strategies. On October 27, 2014, CEFC China signed an agreement in Beijing in the presence of the heads of state of China and the Czech Republic to purchase a 50% stake of J&T Finance Group through share acquisition and private placement, thus becoming the first Chinese private enterprise to have a 50% stake in a European bank.
As a full-service financial group with branches in five European countries, J&T Finance Group owns two leading banking brands, J&T Bank (JTB) and Postova Banka (POBA), providing traditional banking, trusts, private equity funding, asset management, leasing and factoring, facility management services and other innovative financial services. JTB ranks 6th in Czech’s banking sector for its overall strength and was granted the Best Private Bank in the Czech Republic Award for two consecutive years. Its mutual fund placed first in the Investment of the Year contest jointly organized by Forbes. POBA received the Bank of the Year in Slovakia Award run by The Banker magazine in 2010 and 2011. J&T Finance Group’s total assets stood at EUR 9.39 billion by the end of 2014.
After having a 50% stake in J&T Finance Group, CEFC China will take the following steps:
·The Company will inject new capital into J&T Finance Group and increase its own profitability by gaining greater access to low-cost capital and expanding its loans-for-oil business for more upstream oil and gas rights and equities.
·The Company is planning to establish a wholly foreign-owned branch of JTB in Shanghai to conduct cross-border inter-bank businesses as well as settlement and payment transactions. The Company will also cooperate with the China Development Bank (CDB) and make JTB a center of CDB’s bond issuing and overseas settlement services in Europe through inter-bank cooperation.
·JTB, on behalf of the Czech government, will set up the Central & Eastern European Investment Fund with the Industrial and Commercial Bank of China (ICBC) as major initiators. The fund adopts the practice of the Asian Infrastructure Investment Bank and has won the participation of China and 16 countries from Central and Eastern Europe, with the aim to facilitate international investment and cooperation.
·Relying on the sophisticated banking system and management capabilities of J&T Finance Group, CEFC China will scale up its banking and financial system in support of its energy strategies.
Promoting Pan Asset Management Business
The Company is rolling out its pan asset management business through its financial platforms, actively cooperating with banks, insurers and sovereign wealth funds, and has launched buyout funds, industry funds and development funds to fully promote investment in the energy industry and secure crude oil rights and interests.
The Company has built platforms for securities assets management, direct investment and futures asset management, and has acquired an asset management platform in Hong Kong for M&A and securitization operations in the energy and related industries. It has jointly set up the “One Belt One Road” Urban Development Industrial Fund with China Merchants Capital as well as an industrial fund with Shanghai Pudong Development Bank. It has also set up funds with China Investment Corporation, China International Capital Corporation, Jiangxi Railway Investment Group and Everbright Financial Holding Asset Management Company, collaborated with a Jewish fund to establish a fund in Hong Kong, and set up an energy investment fund with Abu Dhabi to invest in rights and equities of upstream resources as well as conduct M&A of oil and gas reserves and logistics facilities overseas.
Increasing Financial Profitability through Industrial Operations
By now, the Company has secured by agreement the equities of over 60 million tons of crude oil annually for at least 10 years. While serving equity liquidity and reducing operation risks, CEFC China has created a channel to transform spot trading into financial asset trading through joint operations of its financial platforms and the interbank market, enabling the integration of services in spot trading, financial hedging and financing, thus achieving higher profitability and asset securitization with business operations as the driver.
Establishing Headquarters in Europe for International Investment Banking
It is the optimal time to acquire Euro-denominated assets, which are undervalued due to the recent global economic crisis and the sovereign debt crisis in Europe. Located in the heart of Europe, the Czech Republic is an important industrial corridor with an edge in equipment technologies and managerial resources. CEFC China has established its second headquarters in the Czech Republic as a bridgehead for developing international investment banking in Europe. It has supported the Czech-based media group to in collaboration with China Central Television (CCTV) in the production of the TV series, “Panda & Little Mole”, taken a controlling stake in and actively supported Slavia Prague Football Club, and built a good brand image through public diplomacy and charitable activities. These efforts have positioned CEFC China to cooperate with outstanding enterprises in the Czech Republic as well as Central and Eastern Europe.
The Company has invested in airline, tourism and special steel in the Czech Republic, with the focus on airline, tourism and industrial manufacturing. Through investments in these areas, it strives to promote the Company’s development, joined by large-scale Chinese enterprises in these “going global” exercises, to bring in advanced technologies and managerial experience, and to enhance the interaction between Chinese and the international markets, and to securitize its assets.
Tourism and Airline
The Company has acquired Czech-based groups and companies in media, airline, tourism and internet service sectors as well as a number of five-star hotels, aiming to build an integrated Sino-European tourism and airline industry. A team dedicated to international tourism and airline development has been assembled to join hands with Chinese and Czech enterprises to integrate tourism culture and airline resources in Shanghai, Hong Kong and the Czech Republic. The team also aims to connect the Sino-European tourism and airline markets and go public in Hong Kong in order to achieve asset securitization.
The Company has also acquired Travel Service (TVS), the second largest shareholder of CSA Czech Airlines, with flight routes covering Europe, Africa, Asia and Latin America. In addition, the Company will further increase its investment in the airline sector, promote the development of a Czech airline center and conduct strategic collaboration with Beijing Municipal Road & Bridge Building Material Group Co., Ltd. (BMRB) and China Eastern Airlines in direct flight, airline management, aircraft maintenance, airport extension and tourism.
The Company has brought Pivovary Lobkowicz, a renowned Czech beer brand, from the Czech Republic to China, to develop business cooperation at all levels, leveraging on shareholders’ advantages in brand resources for comprehensive promotion. The Company has also collaborated with a Jewish fund, which owns a number of high-end hotel properties in Europe, to form an overseas network of real estate with its premium properties in Shanghai, Xiamen and Qingdao, in an effort to promote tourism, airline and real estate businesses between China and the Czech Republic.
CEFC China has constituted an industrial corporate group and a senior professional team to acquire Shanghai FRP Research Institute and ZDAS a.s., a Czech company specialized in special steel, promoting strategic collaboration and interaction among Chinese and foreign enterprises and exploring and integrating the value of advanced industrial technologies and qualified resources from abroad in the Chinese market. Strategic collaboration has been forged with China General Nuclear Power Corporation (CGN), SKODA Praha, a leading enterprise in the nuclear power industry of the Czech Republic, and the Czech Power Industry Alliance (CPIA, consisting of 16 major enterprises in the nuclear power industry of the country). In terms of the manufacturing industry, the Company has acquired a Czech-based manufacturing company, and reached intent to cooperate with Penta (an aircraft manufacturing company) and a Grade-A high-speed rail engineering company.
Major Cooperation Events
Aug 7, a strategic cooperation agreement was signed between CEFC China and BGP Inc., China National Petroleum Corporation (BGP) in Beijing.
Sept 26, a cooperation agreement was signed among CEFC China, the People’s Government of Rizhao City and Rizhao Port Group Co., Ltd. at Tomorrow Square in Shanghai.
Oct 27, an agreement on acquiring shares in J&T Finance Group was signed by CEFC China at the Great Hall of the People in Beijing in the presence of the heads of state of China and the Czech Republic.
Jan 21, a strategic cooperation agreement was signed between CEFC China and China Taiping Insurance Group at Taiping Financial Hall in Shanghai.
Apr 27, a signing ceremony was held by CEFC Anhui International Holdings, Trade Commerce Oil LLP and Ropiton Holding B.V. to acquire shares in Dostyk Gas Terminal LLP (DGT), a company in Kazakhstan.
May 7, a signing ceremony of The Memorandum of Understanding on the Cooperation in Financial and Energy Sectors was held by CEFC China and ADS Holding.
Jun 3-4, a strategic cooperation framework agreement was signed between CEFC China and the Republic of Ingushetia of the Russian Federation on energy and financial cooperation covering projects of oil field re-purposing and exploration and establishment of an energy investment bank in the Republic of Ingushetia.
Jul 6, a cooperation agreement was signed between CEFC China and Gazprom Neft.
Jul 22, a comprehensive cooperation framework agreement was signed between CEFC China and ChemChina Petrochemical Co., Ltd. in Beijing.
Aug 31, CEFC Shandong and Dahua Group Dalian Chemical Industry Co., Ltd. signed a strategic cooperation agreement on joint investment in establishing a comprehensive energy and chemical trade platform in Dalian.
Sept 5, Czech President Milos Zeman visited CEFC China headquarters in Shanghai and witnessed the signing of several cooperation agreements between CEFC China and Czech enterprises.
Oct 28, CEFC Guangdong Financial Investment Holdings Co., Ltd. and Guangzhou Nanyue Fund Management Co., Ltd. jointly invested in establishing the Nanyue Innovation Fund in Guangzhou and signed a cooperation agreement.
Dec 14, a strategic cooperation agreement was signed between CEFC China and KazMunayGas (KMG) in the presence of the Premier of China and the Prime Minister of Kazakhstan in Beijing.
Dec 25, an agreement was signed between CEFC China and CPC Corporation, Taiwan (CPC) on transferring CPC’s stakes in oil and gas blocks in Chad to CEFC China.
Jan 8, CEFC Shenzhen International Holdings Co., Ltd. and China Merchants Capital Investment Co., Ltd. held a signing ceremony of a strategic cooperation agreement on the “One Belt One Road” Urban Development Industrial Fund.
Jan 26, CEFC Guangdong Financial Investment Holdings Co., Ltd., Jiangxi Railway Investment Group Co., Ltd. and Everbright Financial Holding Asset Management Co., Ltd. signed The Memorandum of Understanding on Jointly Establishing an Industrial Fund.
Feb 26, a strategic cooperation agreement was signed among CEFC China, the Shaoguan Municipal People’s Government and Guangdong Material Reserves Administration at Shaozhou Conference Center.
Mar 30 (Prague Time), in the presence of the heads of state of China and the Czech Republic, CEFC China signed cooperation agreements on acquiring 50% shares of J&T Finance Group and having a controlling stake in ZDAS a.s.
Apr 13, an agreement on jointly establishing the Yangtze Railway Industrial Fund by CEFC China, Jiangxi Railway Investment Group Co., Ltd. (JRIGC) and China Everbright Group (CEG) was signed in the Jiangxi Provincial People’s Government building.
Apr 18, an agreement on share acquisition of CITIC International Assets Management Limited was signed by CEFC China at CITIC headquarters in Beijing.
Apr 20, a strategic cooperation agreement was signed between CEFC China and SINOPEC Pipeline Transport & Storage Company.
May 12, a strategic cooperation agreement was signed between CEFC China and Xuzhou Coal Mining Group.
May 16, a strategic cooperation framework agreement was signed between CEFC China and the Baicheng Municipal People’s Government (Jilin Province) on co-establishing the Sino-Canadian Oats Industrial Park and exploring inter-sectoral and integrated development of agriculture, finance and industry.