“PetroChina” (CNPC’s debt surrogate) runs into firestorm of Congressional opposition, with Talisman Energy also put in sanctions cross-hairs
Eric Reeves [March 1, 2000]
Smith College ereeves@sophia.smith.edu
Northampton, MA 01063
A powerful piece (below) appeared in the Wall Sreet Journal/Asia this morning and is expected to appear in the US edition tomorrow (or at least a version of this story). To my knowledge, this is the first time that the so-called “demutualization” of the NYSE (i.e., its transformation from a members-only organization to a publicly-held, for-profit company) has been put at risk because of the controversy surrounding the PetroChina IPO.
Also of interest was the designation by PetroChina in its prospectus (which was filed yesterday with the SEC) that the end-use of its IPO proceeds would be directed to unspecified capital investments and debt repayments. This “general purpose” use of proceeds is surprising given the central role played by the alleged “firewall” — designed to supposedly prevent any IPO proceeds from being diverted to the Khartoum regime — in the growing firestorm surrounding the deal. Finally, it is curious to note, that according to the article, the company “intends to provide some information to the SEC later.”
It is my understanding that Congressional members with oversight responsibilities for the NYSE and SEC are beginning to examine this prospective listing in greater detail—much, much greater detail!
**************************************
U.S. Lawmakers Oppose Plans by China Firm to Launch IPO
By EDUARDO LACHICA
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON — U.S. lawmakers are preparing to oppose a Chinese oil company’s plans to raise capital in the U.S. by listing its shares on the New York Stock Exchange.
A letter requesting President Bill Clinton to block the issue is being circulated to members of the House of Representatives by Rep. Spencer Bachus (R. Ala.), the chairman of the House Domestic and International Monetary Policy subcommittee. He intends to deliver it to the White House in the next few days. The letter asks Mr. Clinton to use his broad executive authority to prevent the state-owned China National Petroleum Corp., or its IPO vehicle PetroChina Co., from making an initial public offering “until an acceptable use of the proceeds has been assured.”
A similar appeal has been made in another letter, which is about to be sent to the White House by Reps. Frank Wolf (R. Va.), Christopher Smith (R., N.J.), Barney Frank (D., Mass.) and other members of the congressional human-rights caucus.
Fears of Diversion
The Bachus-drafted letter warns that some of the IPO proceeds could be diverted through a CNPC-invested Sudanese oil project to the Khartoum government, which has been waging a brutal civil war against Christian and other southern Sudanese minority communities. Even if the proceeds are to be used entirely for domestic oil development as the Chinese now contend, that could help to accelerate exploitation of oil and gas resources in the Tibetan plateau to the detriment of the indigenous population, the letter charges. The letter notes that the U.S. last year vigorously opposed a World Bank project in the Tibetan plateau because of similar concerns. Rep. Bachus and other prospective signatories are echoing the International Campaign for Tibet’s fears that oil and gas extraction in and around Qaidan could prompt another surge of Chinese migration and increase tensions with native Tibetans. The Washington-based expatriate advocacy group also predicts similar consequences from the construction of a Chinese pipeline above or below Kokonor lake, just to the east of Qaidan.
****The congressional human-rights advocates in their letter urge Mr. Clinton to persuade Canadian Prime Minister Jean Chretien to impose sanctions on the Sudanese regime in light of Ottawa’s own findings that the Sudanese military is using pipeline-related facilities to stage attacks on Sudanese civilians.**** CNPC is the leading investor in the pipeline with a 40% share, followed by Malaysia’s oil company, Petroliam Nasional Bhd., with 30% and ***Talisman Energy Corp. of Canada with 25%.***
Mr. Clinton personally is aware of the outrage the prospective Chinese stock offering has aroused among U.S. advocates of human rights and religious freedom. In a letter to the Institute of Religion and Democracy, a Washington-based human-rights forum, the U.S. President said he shares its “concerns about the implications of Khartoum’s new oil revenues.” But he stood by the U.S. Treasury Department’s earlier decision to apply U.S. sanctions only to the Sudanese pipeline company and its Sudanese principal but not to the project’s foreign investors.
He explained that the U.S. hasn’t pursued “extraterritorial” or third-country sanctions because doing so would “ultimately prove counterproductive and hurt our ability to use diplomatic and other means to maintain economic pressure on the regime.”
Pressure on Stock Exchange
But even if Mr. Clinton doesn’t budge, congressional pressure is already bearing on the New York Stock Exchange to prevent the Chinese offering from being listed without a thorough vetting. Critics of the issue complain that it’s being quietly marketed in a “black box” without adequate public scrutiny or regulatory oversight. Rep. Bachus has warned that in light of the exchange’s plan to “demutualize” and become itself an equity-based, capital-raising corporation, “anything but a deliberative, above-board handling of the PetroChina IPO would send the wrong signal to Congress.”
For good measure, he added: “Suspicions concerning the integrity of the process, or disregard for our stated national interests, would call into serious question the appropriateness of a for-profit operation of the
exchange.”
In its prospectus filed with the U.S. Securities and Exchange Commission Tuesday, PetroChina says it will use the proceeds of the issue for unspecified capital investments, the retirement of long-term debt and for general purposes. The letter leaves certain spaces blank, suggesting that the company intends to provide some information to the SEC later.
The filing of the prospectus is only the start of a formal SEC vetting
process. An SEC spokesman said PetroChina can’t start marketing the issue until its registration is approved.