Kunlun Energy Chairman Resigns as China Widens Graft Probe

Dec 18, 2013 3:56 am ET

(Updates with closing share prices in sixth paragraph.)

Dec. 18 (Bloomberg) -- The chairman of Kunlun Energy Co., a gas distribution arm of China National Petroleum Corp., resigned amid a widening government anti-corruption campaign that claimed his predecessor four months earlier. Its shares declined.

Wen Qingshan quit with immediate effect as both chairman and director of the company due to personal matters, Kunlun said in a statement to the Hong Kong stock exchange yesterday. Executive Director Zhang Bowen will assume the chairman’s duties, it said.

China’s Caixin magazine reported on Dec. 16 that Wen is helping in a government graft probe. Wen was taken into custody to assist with an investigation, a person with knowledge of the matter said yesterday, asking not to be identified as he wasn’t authorized to speak publicly about it. Kunlun slumped to a one- month low in Hong Kong today, after its New York-traded stock plunged 16 percent.

Wen’s resignation follows government investigations into five other officials at state-run CNPC, China’s largest energy company, and its units. Four senior managers at CNPC’s listed arm PetroChina Co. were removed from their posts in August after corruption allegations and the former chairman of both CNPC and PetroChina, Jiang Jiemin, was dismissed as head of the state assets regulator and is under investigation, the official Xinhua News Agency said in September.

Tackle Graft

“The scale of the investigation is quite surprising,” Wu Fei, a Hong Kong-based analyst at Bocom International, said by phone. “Not a lot of people would have expected an investigation of this kind of depth and extending for such a long period of time.”

Kunlun shares dropped 3 percent to HK$13.76 in Hong Kong, the lowest since Nov. 19. The stock, down 15 percent this year compared with the 2.2 percent gain in the benchmark Hang Seng index, was suspended yesterday. Kunlun’s American Depositary Receipt dropped the most since April 2012 yesterday in New York, to close at $76.

China’s leaders have pledged to tackle graft, which President Xi Jinping has said threatens the communist party’s 64-year grip on power. Zhou Yongkang, the former head of China’s security apparatus and a party member with ties to the oil industry, is being probed for corruption, the New York Times reported on Dec. 16, citing people with political ties to senior officials.

Wen was promoted to CNPC’s chief accountant in July, and elected as chairman of Kunlun Energy after former Chairman Li Hualin resigned in August amid the probe.

Zhou Links

Xi’s anti-corruption campaign has focused on people with links to Zhou, who was a supporter of Bo Xilai, the ousted Politburo member sentenced in September to life in prison for corruption. Former CNPC and PetroChina Chairman Jiang and Zhou were top executives who served together at an oilfield in eastern China from 1989-90, according to their official biographies. Zhou led CNPC in the 1990s as its general manager.

Hua Bangsong, the chairman of PetroChina supplier Wison Engineering Services Co., is also assisting the authorities in their investigation, the company said in September. PetroChina was Wison’s biggest customer before 2012.

Wen was appointed as a deputy director at CNPC’s financial assets management department in 1999, and promoted to director in 2002, according to CNPC’s website. He was further promoted to deputy chief accountant in 2007. Wen has worked in China’s oil and gas industry for about three decades, according to his CNPC biography.

‘No Disagreement’

“Wen confirms that he has no disagreement with the company and the board and there are no further matters to which the attention of the shareholders of the company has to be called,” Kunlun Energy said in the statement. Daily operations aren’t affected. it said.

“Wen’s resignation will only inject more uncertainty into Kunlun Energy and also PetroChina as no one knows for sure how long this investigation will last and how many more officials will get involved,” said Bocom’s Wu.

PetroChina gained 0.6 percent to HK$8.60 in Hong Kong trading, making this year’s decline 22 percent.

--Editors: Madelene Pearson, Jason Rogers