China's CITIC group conducting due diligence on CEFC's Abu Dhabi oil stake: sources

BEIJING (Reuters) - State-run Chinese conglomerate CITIC Group is conducting due diligence on CEFC China Energy’s stake in onshore oil fields in Abu Dhabi as CITIC prepares, under the Chinese government’s direction, to possibly take over CEFC’s energy business, said two sources with knowledge of the matter.

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CITIC is examining CEFC Energy’s 4 percent holding in onshore oil fields operated by Abu Dhabi National Oil Co that it paid $900 million for in 2017, said a source briefed on the matter. A CEFC company source confirmed that the due diligence was being carried out.

A Chinese government official who was briefed on the discussions told Reuters earlier this month that CITIC was approached by the government to examine and possibly take over CEFC’s energy assets.

CEFC is looking to sell assets to raise cash as concerns about its financial position were raised after its Chairman Ye Jianming was revealed in March to be under investigation for suspected economic crimes.

Following the revelations of the investigation, CEFC was found to have nearly $7 billion of short-term debt coming due in the first-half of this year. Additionally, Reuters reported in March that the company sought short-term financing with interest rates of up to 36 percent a year from shadow lenders to bolster its finances.

CEFC purchased the Abu Dhabi stake as part of a spree to expand its energy assets that also included an agreement to buy a 14.16 percent stake in Russia's Rosneft ROSN.MM for $9.1 billion.

The Abu Dhabi stake is for onshore oil fields that produce about 1.4 million barrels per day of crude and CEFC’s share gives it the right to market about 2 million barrels a month of Murban crude that is highly sought by Asian oil refiners.

“CITIC is interested in the Abu Dhabi asset. They consider that as a good asset,” said one of the sources briefed on the matter.

CITIC and CEFC did not respond to requests for comment.

“CITIC is doing early due diligence on the Abu Dhabi asset,” said the second source, adding that CITIC was not interested in a 35 percent stake in oil and gas blocks in Chad that CEFC bought in September 2016 from Taiwan’s Chinese Petroleum Corp for about $110 million.

“The Chad asset was considered risky, with lots of issues,” said the second source, without elaborating.

A deal to buy one of CEFC’s most prized energy assets would be the latest effort by the government to restructure the embattled energy company. State-controlled China Huarong Asset Management Co has taken a 36.2 percent stake in CEFC Hainan International, the unit that is acquiring the Rosneft stake.

Last week, CITIC signed a memorandum of understanding to form a joint venture with CEFC Europe, the Czech Republic-based unit of CEFC, a month after Reuters reported that CITIC was in talks with CEFC to hold a 49 percent stake in the proposed venture.

It is unclear if CITIC will take over any of CEFC’s domestic oil and gas business or take a role in the acquisition of the Rosneft stake.

Additional reporting by Bi Xiaowen in SHANGHAI; Editing by Christian Schmollinger