F.T. says PetroChina Hits ‘Wall of Political Objections,’ Triggers Postponement in Big I.P.O.s by Sinopec, Baoshan

(Washington, D.C.): “The incredible shrinking share offering.” That is how today’s
Financial
Times ridiculed PetroChina’s Initial Public Offering (IPO), slated to begin trading this
Thursday in New York, after its expected price was set at only $2.9 billion — down roughly 70%
from its original $10 billion target amount.

In a sense, there is an even more dramatic indication of the market impact of efforts by
a broad-based coalition opposed to the penetration of U.S. capital markets by dubious foreign
entities:
Over the weekend, the planned IPO of Sinopec, Beijing’s second largest oil company, and
Baoshan Iron and Steel, a massive state-owned enterprise, have been postponed.

The Sinopec deal was expected to come to the New York Stock Exchange in June for
an estimated
$6 billion. Boashan was reportedly to have begun its global offering (including a major New
York component) this month. Together with the FT article of today, a report featured in the
paper’s Companies and Markets section on Friday entitled “Chinese Issue Disappoints” offers a
damning indictment of the PetroChina offering. The latter in particular is noteworthy insofar as
it underscores an astonishing fact: As much as 50% of the reportedly final IPO amount of $2.9
billion was attracted from”Hong Kong-listed window companies and mainland enterprises…and
big strategic investors from Hong Kong and the UK, including BP [i.e., BP-Amoco]” — a
prospect the Casey Institute anticipated when it predicted that the PetroChina deal could end up
looking as much like a “private placement” as a “public offering.”

Financial Times, March 31, 2000

Chinese Issue Disappoints

By Ho Swee Lin

PetroChina, the oil company that was to have been China’s biggest privatisation before this
was
heavily scaled back, priced at the low end of the range yesterday after failing to win over global
investors.

Shares were priced at HKDollars 1.28 each, according to bankers close to the deal, compared
with a price range of between HKDollars 1.24 and HKDollars 1.51 per share.

China mobilised its resources to ensure the deal got away.

Failure would damp the outlook for the ranks of state-owned enterprises queuing up for
international funds.

It is understood several redchips, the Hong Kong-listed window companies of mainland
enterprises, were corralled into taking stakes at the 11th hour. Earlier, big strategic investors
from Hong Kong and the UK, including BP, were lined up.

BP agreed to invest up to USDollars 1bn for 20 per cent of the 17.58bn shares on offer.

PetroChina, the main unit of China’s largest oil producer, China National Petroleum
Corporation
(CNPC), will now raise a total f HKDollars 22.5bn (USDollars 2.9bn) from the issue.

This is 15 per cent less than the upper limit of HKDollars 26.55bn and a fraction of the
USDollars 10bn it was originally seeking.

Response from institutions in the US was said to be particularly poor, largely due to rising
opposition from human rights organisations and big US public pension bodies.

Since PetroChina announced its plans to seek an international listing last year, the IPO has
attracted strong opposition in the US over links to alleged human rights abuses and terrorist
funding in Sudan, where the company’s parent, CNPC, has a joint venture oil project.

The AFL-CIO, which represents 13m workers in more than 60 labour unions in the US,
issued a
report opposing PetroChina’s share offering earlier this month.

It has also been discouraging many US pension funds from investing in the company.

Among several US pension funds that had expressed their intention to boycott the IPO were
TIAA-CREF, the world’s largest pension system, with Dollars 280bn in assets under
management, and the California Public Employees Retirement System (Calpers), which manages
Dollars 170bn in assets.

The success of the IPO will have a significant bearing on the ability of many Chinese
state-owned enterprises to tap the international markets for funds as they prepare for the
onslaught of
foreign competition following China’s accession to the World Trade Organisation.

Some fund managers, however, think that a cancellation of the IPO would be better for the
IPO
hopefuls.

“There will of course be embarrassment if the whole issue was pulled,” said one Western
fund
manager.

“But the consequences will be worse if people get their fingers burned again, as it would
mean
that the investment community will steer clear of future Chinese issues.”

Financial Times, 3 April 2000

PetroChina

The Lex Column

The privatisation of PetroChina has turned into the incredible shrinking share offering. From
an
initial estimate of $10bn, the flotation has dwindled to less than $3bn, as its lead managers ran
into a wall of political objections. The Sudanese investments of China National Petroleum,
PetroChina’s parent, have prompted many large US investors to boycott the issue.

It is, perhaps, unsurprising that public sector investors such as Calpers or TIAA-Cref should
have
shunned such a controversial offering. More worrying for investment bankers eyeing a steady
stream of Chinese privatisations, Vanguard’s indexed funds have bought no PetroChina shares
either. China is already drawing the obvious conclusion, and has postponed planned IPOs for
Sinopec and Baoshan Iron and Steel.

Fundamental prospects for PetroChina appear, in some respects, rosy. Growth is expected to
come in at around 15 per cent per annum, against a sector average 5 per cent. The dividend
policy is likely to be generous, if only because of its parent’s reliance on PetroChina’s cashflow
to fund obligations to its employees. But don’t expect the political issues dogging PetroChina to
disappear once the stock starts trading on Friday. BP Amoco, which misread the Washington tea
leaves over Arco, may have done so again with its $1bn investment. The campaign mounted
against PetroChina has won broad support even among politicians more usually committed to
opening up trade with China. This movement has legs.