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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

On December 14, 2015, CEFC China signed an agreement with KazMunayGas (“KMG”), the national oil company of Kazakhstan, to acquire a 51 percent stake in KMGI, a subsidiary of KMG in Romania, to provide CEFC China with access to a system of oil and gas terminals in Europe. The parties are working towards closing.


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. Through the acquisition of a controlling stake in KMGI, CEFC China has gained access to an advanced gas station and oil reserve management system, an internationalized operation and management team of over 7,000 persons, and large refinery and chemical plants with the most cutting-edge technology, based on which CEFC China further acquired equity participation and controlling stakes in oil companies in many European countries.







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. In addition, CEFC entity acquired a 40 percent stake in Dostyk Gas Terminal LLP (“DGT”), a company in Kazakhstan which mainly engages in LNG transshipment logistics and trading. In 2016, the natural gas sales volume of DGT was 193,900 tons.


- Abu Dhabi, the Middle East: CEFC China and Abu Dhabi have signed a strategic cooperation agreement to acquire long-term stable oil interests, participate in the development of upstream oil and gas projects in Abu Dhabi, and engage in energy reserve and open market trading cooperation. CEFC China acquired a 4 percent stake in the Adco onshore oil concession owned by the Abu Dhabi National Oil Company (“ADNOC”). The Company reached an agreement with ADNOC to have 10 million tons of crude oil supply from Abu Dhabi annually and to further invest in the construction of oil transshipment and storage facilities.

 

- Chad, Africa: In December 2015, CEFC China signed a Cooperation Agreement with OPIC Africa Corporation of CPC Corporation, Taiwan (“CPC”) to acquire a 50 percent share of CPC’s interests in the latter’s three oil and gas blocks in Chad. CEFC China is also planning to cooperate with CNPC concerning an H Block project in Chad.


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.


Oil Reserves


- 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: CEFC China is in the process of building large scale oil storage bases in China, including one in Yangpu Harbor, Hainan province, where Phase I construction is complete. The Yangpu Harbor oil depot will have a capacity of 2.8 million cubic meters, and is currently in trial operation.

 

- 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 is working 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 is in the process in investing in the oil reserve base project at Dongjiakou Port, acquiring shares in the second crude oil terminal with a capacity of 300,000 tons at Dongjiakou, and establishing 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.



- An affiliate of CEFC China and China Railway Corporation jointly established Central Asia Oil and Natural Gas Logistics Co., Limited. The purpose of the joint venture is to invest in infrastructure development relating to liquefied natural gas (“LNG”) transportation via railway and operate a transportation network construction business. Through DGT LLP, a Kazakhstan company acquired by CEFC China, the joint venture is able to transport liquefied petroleum gas from Kazakhstan to China via railway.


- An affiliate of CEFC China became a shareholder of Guangdong National Reserve Logistics Co., Ltd. (“GDNR”) by subscribing for newly issues shares of GDNR. GDNR is engaged in the refined oil wholesale, retail, and storage business.


- CEFC China has cooperated with China State Shipbuilding Corporation (CSSC) to engage in commercial floating oil 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 energy trading.




Oil Products Processing


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 and the rights to export refined oil products will be opened up further. With its upstream resources and reserves, CEFC China is able to promote oil products processing utilizing the company’s advantages in refining and engage in the export of refined oil products to Southeast Asia or South Asia.



- CEFC China has cooperated with China National Chemical Corporation (ChemChina) to jointly carry out oil products processing.


- CEFC China has cooperated with CPC Corporation, Taiwan, to conduct oil products processing and to engage in the export of refined oil products to Southeast Asia.


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


To engage 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 and financial asset transactions, CEFC China has set up financial services companies focused on finance, funds and financial leasing. The Company has also partnered with established Chinese financial institutions to create several investment funds operating both inside and outside China, 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 an intended 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. The Company is also working on establishing funds with different institutions, including the “One Belt One Road” Urban Development Industrial Fund with China Merchants Capital, an industrial fund with Shanghai Pudong Development Bank, funds with China Investment Corporation, China International Capital Corporation, Jiangxi Railway Investment Group and Everbright Financial Holding Asset Management Company and etc.


Increasing Financial Profitability through Industrial Operations


By now, the Company has entered into several agreements securing crude oil equity rights with at least 10 years’ period. 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.


Industrial Manufacturing

 


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


2014

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.


2015

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.


2016



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.


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