Continental Oil and Gas received a regulatory letter from the Shanghai Stock Exchange. A few days ago, it announced plans to borrow $250 million USD to advance Middle East projects: the interest rate is 200 basis points higher than bank rates, with all core assets of its subsidiary pledged as collateral.

Why does the Shanghai Stock Exchange focus on subsidiary loan guarantees in its regulatory work letter?

By Wu Zepeng, Daily Economic News; Edited by Wei Guanhong

On March 24, the Shanghai Stock Exchange issued a regulatory work letter to Intercontinental Oil & Gas (SH600759, stock price 6.44 yuan, market value 26.7 billion yuan) regarding loan guarantee matters of its subsidiaries. The recipients include the listed company, directors, and senior management.

The Daily Economic News reporter noted that a few days earlier, Intercontinental Oil & Gas announced plans to lend $250 million through its subsidiaries to commodity trader Mercuria, to repay existing loans and advance production operations for its projects in Kazakhstan and Iraq.

The cost of this loan is significant: not only is the interest rate as high as 10.5%, about 2 percentage points higher than current bank loans, but the company also pledged the core assets of its controlling subsidiaries as collateral. Since the total assets involved in the collateral were not consolidated and offset, they are reported on a standalone basis, resulting in collateral asset values even exceeding the total assets of the company’s consolidated financial statements.

In its previous announcement, Intercontinental Oil & Gas warned that if the loan cannot be repaid on time, the company may face the risk of core asset disposal.

One for debt repayment, another for “Kazakhstan + Middle East” expansion

On March 24, the Shanghai Stock Exchange issued a regulatory work letter to Intercontinental Oil & Gas and its relevant directors and senior executives. However, the letter has not yet detailed specific content, only indicating that the matter relates to the loan guarantee of the company’s subsidiaries.

Source: Website screenshot

Just a few days earlier, Intercontinental Oil & Gas had announced a subsidiary loan. The Daily Economic News reporter observed several notable points about this loan.

On March 20, Intercontinental Oil & Gas announced plans to lend a total of $250 million through its controlled subsidiaries, Maten Petroleum Co., Ltd. (hereafter Maten) and China-Korea Energy Group Co., Ltd. (hereafter China-Korea).

According to the company, the funds will be used in two parts: $170 million to repay Maten’s loans with Bank of China and for subsequent development expenses of its Kazakhstan projects; and $80 million for Iraq project development.

However, from the announcement, it appears that the main purpose of this financing is to fund the SBIPRO project in Basra Province, southern Iraq. This is an integrated upstream and downstream project, with upstream being oil fields and downstream including refineries, fertilizer plants, and chemical factories producing polyethylene and polypropylene.

Intercontinental Oil & Gas stated that the Kazakhstan oil and gas fields are already in the late stage of development with limited growth potential. Since 2018, the company has shifted its strategic focus to the resource-rich Middle East. The Iraq project requires substantial upfront investment to reach production capacity and generate new profit streams. Additionally, the diversified “Kazakhstan + Middle East” approach helps hedge regional risks.

Collateral assets exceeding the company’s total assets

It is important to note that Intercontinental Oil & Gas is lending to Mercuria, a leading global commodity trader. The Daily Economic News reporter checked Mercuria (China) official website, which shows that the company’s business model combines trade and asset investment, offering a range of financing solutions.

Intercontinental Oil & Gas described Mercuria as one of its strategic partners. Before finalizing the loan with Mercuria, the company engaged with various large and medium-sized traders, Chinese banks, and local Kazakh banks. Overall, Intercontinental Oil & Gas believes Mercuria’s loan terms—such as the amount, duration, and use of funds—best fit its operational needs and maximize its interests.

However, the cost of this loan is also high. The announcement states that the interest rate for the Mercuria loan is 10.5%, compared to lower commercial bank rates of approximately 7.15%–8.4%. But commercial loans have restrictions on fund use and longer processing times, which Intercontinental Oil & Gas said it could not meet.

The company also noted that, based on international energy industry practices, financing rates for oil and gas development and operations are generally higher than typical commercial loans. Moreover, Kazakh energy companies often finance through commodity traders and international bonds, with rates usually above 10%. Therefore, the company considers its current financing rate to be commercially reasonable.

Additionally, the reporter found that to secure this financing, Intercontinental Oil & Gas has pledged its core assets. According to the agreement, as of September 30, 2025, the pledged assets of Maten, Keshan, and other entities total 13.233 billion yuan, exceeding the company’s consolidated total assets of 12.522 billion yuan at the same period.

Intercontinental Oil & Gas explicitly stated in the announcement that if the loan cannot be repaid on time, the company risks losing its core assets. The reporter checked the company’s semi-annual report from last year, which shows that Intercontinental Oil & Gas indirectly owns 98.718% of Maten and 100% of China-Korea.

Daily Economic News