International Rivers Actions During Sinohydro's IPO

Sunday, September 30, 2012
International Rivers' letter to Sinohydro regarding its IPO

In recent years, the Chinese government has encouraged state-owned enterprises to issue public shares, and as a result, many Chinese dam-building companies have started to issue new shares. During an IPO, there is significant attention on the company’s performance and business risk. International Rivers took a series of actions during the Initial Public Offering (IPO) of Sinohydro, which commenced in March 2009 and concluded in September 2012. International Rivers IPO campaign was not a simple protest, but represented an opportunity to continue our case for environmental policy reform and help inform a broader audience. The aim of the IPO campaign was to put pressure on Sinohydro to adopt an environmental policy that is consistent with international standards, and to become a responsible global actor.

In China, companies seeking approval to conduct an IPO must demonstrate to the Ministry of Environment Protection (MEP) that they have a good environmental record. As part of the approval process, the MEP invited public comment on Sinohydro’s environmental record. International Rivers organized a sign-on letter noting civil society concerns about Sinohydro’s overseas dam-building activities and a number of controversial projects the company was involved in. Civil society groups recommended Sinohydro should develop an environmental policy consistent with international standards.

Due to poor conditions of Chinese financial markets and a need for internal restructuring, Sinohydro’s IPO was delayed until 2011until Sinohydro’s prospectus was finally approved in July 2011. Sinohydro’s IPO was projected to be one of China’s biggest IPOs in 2011. On the announcement of the approval of Sinohydro’s IPO, International Rives wrote to Sinohydro’s Chairman. We recommended that Sinohydro take advantage of the attention on the company during the IPO to adopt and implement an environmental policy and sustainable development framework, to bridge the gap between national and international standards and decrease business risks in its overseas operations. We argued that doing such activities would demonstrate to domestic and international stakeholders that Sinohydro is a responsible, international enterprise.

Once Sinohydro officially publicized their IPO prospectus, we analyzed the prospectus and found that it lacked detailed descriptions of the political, operational and reputational risks of Sinohydro’s overseas projects. Such details are essential for investors to assess the risks of Sinohydro’s overseas operations. Therefore, International Rivers decided to take action to raise the awareness of financial market stakeholders of the social and environmental risks involved in Chinese overseas dam-building.

Rather than merely criticizing the lack of details on environmental and social issues in Sinohydro’s IPO prospectus, we decided to acknowledge Sinohydro’s progress and sought to increase pressure from financial market stakeholders (equity analysts, advisors and financial media) for Sinohydro to adopt and fully implement the environmental policy.

International Rivers wrote to Sinohydro’s underwriters, associated investment banks and the lawyers responsible for advising the IPO parties. In our letters, we stated that the prospectus did not adequately disclose Sinohydro’s overseas environmental and social risks. We encouraged them to advise Sinohydro to adopt an environmental policy of the highest international standard, fulfill its environmental and social responsibilities, as well as monitor the timely and quality implementation of Sinohydro’s environmental policy.
Sinohydro’s IPO promotional events also provided a forum to discuss the company’s social and environmental risks. In fact, the public presentation events and online chat room were critical opportunities to have direct and public conversations with Sinohydro senior management. A Chinese NGO partner of International Rivers was able to attend the roadshow and inquired about the environmental issues in Sinohydro’s overseas operations.

In the days leading up to the IPO, we contacted leading journalists in the Chinese financial media to share our analysis of Sinohydro’s overseas risks. Chinese newspapers “First Financial Daily” and “Chinese Energy Daily” published stories based on our briefing on Sinohydro’s operational risks, and the importance of adopting an environmental policy.

Overall our actions around Sinohydro’s IPO made Sinohydro’s management, IPO sponsors, potential investors, financial media, and markets more aware of the impact of environmental and social risks on Sinohydro’s business operations. Media reports also increased the public pressure on Sinohydro to act. In December 2011, two months after the IPO, Sinohydro advised International Rivers it had adopted an environmental policy for its international operations.