Prudential Securities’ Melcher Breaks The Code On The Long-Term Market Implications of PetroChina Controversy

(Washington, D.C.): On 22 March, Mark Melcher (Institutional Investor’s
Number One-ranked
Washington investment analyst) and his colleague at Prudential Securities, Stephen Soukup,
published what should be a market-moving analysis (see the
attached) under the headline “The
PetroChina Dust-up: The Start of Something Big.” According to these respected Wall Street
analysts, the “Something Big” is the “irreversible” adoption of an expanded concept of “due
diligence” to include the implications for U.S. national security of the entry into the American
capital markets by questionable foreign entities.

If, as has so often been the case in the past, Messrs. Melcher and Soukup’s forecast — which
was
distributed to over 30,000 leading institutional investors nationwide via their publication,
Potomac Perspective — is vindicated, the controversy over a New York Stock
Exchange listing
and Initial Public Offering by China National Petroleum Company’s PetroChina subsidiary will
have been primarily responsible for the draconian down-sizing of this IPO (already down from
projected proceeds of $10 billion to perhaps as little as $3 billion). It will also represent
the
realization of the William J. Casey Institute’s four-year effort 1) to strengthen disclosure
and reporting requirements for such foreign entities; 2) to catalyze new, voluntary
security-
and human rights-minded deliberations with respect to U.S. public and private portfolio
purchasing decisions; and 3) to interrupt temporarily access to our markets only in cases of
egregious national security and human rights abuses or those entities inordinately aiding
same.

For the “Potomac Perspective” to have its proper impact on the market, however, several
points
require clarification. First, the approach taken by the Casey Institute and its Chair,
Roger W.
Robinson, Jr., to global “bad actors” has always been nuanced, focusing on individual
entities
coming to market, not on entire countries or their companies in the aggregate. Second, while the
Casey Institute is credited with helping to create a broad-based, ad hoc coalition of
organizations
opposing PetroChina’s public offering in this country, recognition is due each of
these groups —
including labor unions, religious freedom, human rights and national security-minded
organizations — that have acted independently and courageously to challenge this troubling
transaction from their respective points of view and utilizing resources and means at their
disposal. Finally, the Casey Institute’s Capital Markets Transparency Initiative and its principal
author, Mr. Robinson, have consistently opposed capital controls, undue government
intervention in the markets or other measures that could impede the free flow of capital into and
out of the United States.

The Bottom Line

With these caveats, the Melcher-Soukup Perspective should be considered
“required reading” for
those in the markets, as well as those in the public policy community, seeking to understand this
important paradigm shift in the ways the capital markets will likely do business in the
21^st
century. We commend the authors and Prudential Securities for grasping the necessity — and
now the inevitability — of increasing the security-mindedness of investors, fund
managers,
investment banks and others (including legislators and non-government policy activists)
concerned with, in Messrs. Melcher and Soukup’s words, “the rarefied world of investment
banking.”