Broad-Based Coalition Plays Pivotal Role in PetroChina’s I.P.O. — And Market’s Bleak View of Chinese State-Owned Enterprises

(Washington, D.C.): In the wake of the dismal performance of PetroChina’s initial public offering (IPO) on the New York Stock Exchange last week — in which, following a day of intervention by the issue’s investment banker, Goldman Sachs, it lost 7.5% of its value — a surprising explanation has emerged: Market forces alone were at work.

While it is certainly true that American investors have sensibly recoiled from this offering by a subsidiary of China National Petroleum Company (CNPC) — a quintessential “old economy” dinosaur that has labored under a bloated payroll of some 1.2 million employees, it is worth remembering how PetroChina came into being: It was hastily configured in the hope of finessing policy objections arising from a bid to penetrate the U.S. capital markets by a company like CNPC, with its close ties to the terrorist-sponsoring, weapons of mass destruction proliferating, slave-trading and genocidal government of Sudan.

PetroChina subsequently ran into its own policy controversy, thanks to its reported intentions to lay off up to 800,000 workers, its plan to despoil Tibet and its complete operational and financial subordination to CNPC and, in turn, to its owner — the government of China. These problems were much in evidence at a press conference held on the eve of the 6 April introduction of the PetroChina IPO on the NYSE and sponsored by a number of organizations who had joined forces in an unprecedented, broad-based coalition forged to oppose this ill-considered initiative.

The following were among the members of this ad hoc coalition who participated in the National Press Club event on 5 April: Ron Blackwell, Director of Corporate Affairs, AFL-CIO; Dr. Charles Jacobs, President, American Anti-Slavery Group; Braden Penhoet, Esq., Center for International Environmental Law; Nina Shea, Director, Freedom House’s Center for Religious Freedom; Michelle Chan-Fishel, International Policy Analyst, Friends of the Earth; John Ackerly, President, International Campaign for Tibet; Sophia Conroy, Member of the Board of Directors, Students for a Free Tibet and National Coordinator, US-Tibet Committee; Kevin Kearns, President, U.S. Business and Industrial Council; and Roger W. Robinson Jr., Chairman, William J. Casey Institute of the Center for Security Policy.

Mr. Robinson, whose long-time concerns about the national security implications of this sort of penetration of the U.S. debt and equity markets made him a force behind this coalition, used the occasion to underscore the substantive issues that were to bring such grief to the PetroChina IPO and — as the attached article published in Monday’s Investor’s Business Daily makes clear — for other global “bad actors.” Highlights of his remarks included the following:

• The near-meltdown of the PetroChina initial public offering (IPO) — which was downsized by over 70% from the originally-targeted amount of $10 billion last fall — was, in large part, catalyzed by the activities of a broad-based opposition coalition, several members of which are here today.
• Efforts to attribute exclusive — or even primary — responsibility for this draconian decline in U.S. investor interest to traditional market considerations are misplaced, as a number of leading financial publications have made clear. The indefinite postponement over the weekend of the estimated $6 billion Sinopec IPO (scheduled to come to New York in June) and the Boashan Iron and Steel IPO envisioned for this month or next (anticipated to be in the neighborhood of $1-2 billion) were reportedly a direct result of this historic and intense PetroChina controversy.
• As a result, the total amount of foregone capital to have been raised by Chinese state-owned firms in the U.S. equity market in this time-frame was some $15 billion. What is more, as much as half of the PetroChina deal had to be privately placed with so-called “strategic Hong Kong investors” (read, those under Beijing’s influence), Hong Kong “Red Chip” companies and BP Amoco.
• The message is clear: Henceforth, the definition of “market forces” and the scope of “due diligence” risk assessments conducted with respect to foreign firms seeking to enter the U.S. capital markets will need to be expanded — preferably on a voluntary basis — to include potent, new “non-financial” concerns, notably those involving national security and human rights. In addition, transparency and disclosure requirements for such foreign entrants to the U.S. capital markets need to be strengthened.
• Finally, the lessons of the PetroChina dispute should be integrated into public pension fund purchasing decisions as well as the deliberations of other international portfolio managers. The Casey Institute of the Center for Security Policy has been pursuing this broader agenda, under our “Capital Markets Transparency Initiative,” for some four years. We are pleased to have been joined in this effort by so many others, including those represented here. We also look forward to continuing to provide financial and national security expertise to build on our success to date.