PetroChina I.P.O. Team Allegedly Violates S.E.C. ‘Gun-Jumping’ Rules in Desperate Bid to Get to Market

(Washington, D.C.): Repeated congressional warnings to Securities and Exchange
Commission
Chairman Arthur Levitt urging him to ensure — in the words of Rep. Michael
Oxley (R-OH),
Chairman of the House Commerce Committee Subcommittee on Finance and Hazardous
Materials — that “all requirements under the Securities Act of 1933” are properly met were
apparently vindicated yesterday. Bloomberg’s wire service reported on 22 March that
Goldman
Sachs Group, Inc., the lead underwriter of the impending and increasingly controversial
PetroChina Initial Public Offering, “may have run afoul of securities laws by
prematurely
sending out e-mails on the offering to prospective investors.”

The e-mails in question were reportedly sent to some 77 of Goldman’s hedge-fund and
institutional clients in the United States to promote the now-estimated $2.8-3.4 billion (down
from the $10 billion sale originally sought by PetroChina’s parent company, China National
Petroleum Company (CNPC)). They apparently did so in violation of laws proscribing, as
Bloomberg put it, “underwriters from issuing written communications on a stock sale [other]
than a preliminary prospectus or a tombstone advertizement, without Securities and Exchange
Commission clearance.”

Potential legal difficulties are but one aspect of PetroChina’s increasingly troubled IPO.
As an
article in the 21 March editions of the Financial Times makes clear, opposition to this
transaction has given rise to an extraordinarily broad-based and potent coalition of national
security-minded, human rights, labor, religious freedom and environmental organizations
spanning the entire political spectrum. For example, prospective investors participating in
Goldman’s Roadshow have been inconvenienced by protesters led by AFL-CIO, Tibetan and
Sudanese activists, first in New York City and today in Boston. In the latter instance, the
“Counter-Roadshow” featured relatives of Sudanese citizens whose freedom, if not their lives,
might be jeopardized by a regime in Khartoum widely expected to be enriched by unwitting
American investors’ funds being passed through via the PetroChina, CNPC and the Chinese
government.

Financial Times, March 21, 2000

Left and Right Unite in Protest Over PetroChina Offering

By Stephen Fidler and John Labate

Arthur Levitt, chairman of the Securities and Exchange Commission, should expect to be
bombarded by e-mail from thousands of students this week.

A group called Students for a Free Tibet are urging him to stop a planned public share
offering
by PetroChina, the main operating subsidiary of China’s biggest oil company.

The students are part of an extraordinary ad hoc coalition that has united left-leaning protest
groups, trade unions and conservative national security types against the offering.

The effort suggests the activism that non-governmental organisations took to the Seattle
meeting
of the World Trade Organisation is spreading to the financial markets, with consequences for
companies running controversial operations.

The students say their main concern over PetroChina is that the money the company aims to
raise
in the US capital markets will finance a pipeline across Tibet, entrenching Chinese control there.
Their proposed e-rally before the head of the SEC, however, may have little impact.
PetroChina’s registration has been submitted to regulators and the company’s roadshow for
investors is under way.

Their allies in the coalition are worried about issues that range from the oil company’s part in
developing the oil industry in Sudan, where they fear it will help to finance a civil war against
Christian separatists in the south, to the consequences of providing US capital to finance what
they call global “bad actors”.

“This is the first chance that everybody in this country has had to take money right out of
Beijing’s pockets, and we’re going to make it as tough as we can for them,” said Lhadon
Tethong of Students for a Free Tibet.

The students have been joined by the AFL-CIO union federation, which has organised an
anti-PetroChina roadshow to compete with the investor roadshow being organised in the US by
Goldman Sachs. PetroChina is seeking to raise about Dollars 3.4bn, much less than originally
expected and some fund managers say the disinvestment campaign may have played a role.

“The escalating controversy over the PetroChina IPO (initial public offering) is a harbinger
of
what is to come,” said Roger Robinson, senior director of international economic affairs in
former President Reagan’s National Security Council.

He is among conservatives working to encourage Congress to prevent the US capital markets
being used to raise money for entities deemed likely to hurt US national security interests or
encourage serious human rights abuses.

Some legislators, including Republicans Michael Oxley and Spencer Bachus, have already
written to Mr Levitt over the issue.

The campaign – which is also being directed towards states and others controlling big
pension
funds – had its roots in efforts to encourage big US pension funds to divest shares in Talisman,
the Canadian oil company, because of its joint venture with PetroChina in Sudan. Since this
campaign started Talisman shares have dropped sharply, and some fund managers have sold their
holdings.

TIAA-CREF, the world’s biggest pension fund system with Dollars 280bn of assets, and the
California Public Employees Retirement System (Calpers), managing Dollars 170bn in assets,
said they did not plan to invest in the offering.

Because of the Sudan disinvestment campaign, the company was restructured to leave
PetroChina in charge of domestic holdings, and the parent – China National Petroleum
Corporation – in charge of the foreign operations. The PetroChina documents state that CNPC’s
use of the proceeds will be held in a separate account and used only to reduced CNPC’s
borrowings and to fund employee retraining and severance programmes.

This “firewall”, however, has not convinced the deal’s opponents, including Congressman
Bachus from Alabama. In a recent letter to the SEC chairman, Mr Bachus said: “PetroChina is
assuming a large portion of the debts formerly owned by its parent, CNPC.

“There is no question that this will significantly increase CNPC’s access to financing that
would
otherwise be unavailable to fund its foreign operations. Therefore, the direct transfer of funds and
assumption of old CNPC debt will significantly and materially aid CNPC in that it will now be
able to use its current or future revenues to finance its foreign operations.”