Earlier this year, PetroChina, a state-run Chinese oil company had a bond issue in the U.S. that was a miserable failure, only raising a third or something of what they had originally planned. This was due largely to efforts by a "PetroChina Coalition" to inform institutional investors about the risks associated with PetroChina's dealings in the Sudan, a country which is on the U.S. list of official sponsors of terrorism. It seems that the risk of possible U.S. action against Sudan was enough to make investors think twice about investment in PetroChina, and maybe the stigma of it made them think twice too.
In a letter to the SEC chairman, Rep. Frank Wolf (R-Virginia) said that companies’ failure to disclose their dealings with countries such as the Sudan was a disservice to investors, and that the SEC, with its obligation to oversee disclosures, should insure that such information is not omitted in the future. “Given the successful Sudan-related divestment campaign being waged...investors should have been alerted to this potential impact. The prospectus contained no accounting of the massive public opposition campaign levied against PetroChina and the potential risk to investors of this ongoing activism on share value.”
In a May 8 response to Rep. Wolf, the Acting Chairman of the SEC, Laura Unger, said that while the SEC does not have the authority to block investments, it is required to make sure that investors have access to relevant information about companies listed on U.S. exchanges. Therefore, she said the SEC will “seek information from registrants about material business in, or with, countries, governments, or entities with which U.S. companies would be prohibited from doing business under economic sanctions administered by OFAC [the Office of Foreign Assets Control].”
The House version of the Sudan Peace Act would formalize the above in law, but it would go further. The bill reserves special prohibitions for oil companies, prohibiting "any entity engaged in the development of oil or gas in Sudan from raising capital in the United States; or from trading its securities...in any capital market in the United States." Because the United States maintains sanctions against Sudan, there are no American oil companies that would be affected if this bill becomes law. However, companies like the above-mentioned PetroChina, Canada's Talisman Energy and Sweden's Lundin Oil, and Malaysia's Petronas would be affected.
Anyway, long story short: Bush opposes the language in the House bill, which could put him in an uncomfortable position vis-a-vis Christian conservatives.
I guess that's a too-long intro to the Financial Times article below. I hope it was informative anyway. (Wohoo! My First LBO Talk submission.)
-Dave Zanni
Bush set to head off oil sanctions in Sudan bill By Edward Alden in Washington Published: August 7 2001 20:11GMT | Last Updated: August 8 2001 03:43GMT
The Bush administration is set to oppose legislation that would bar foreign oil companies doing business in Sudan from listing on US stock exchanges, fearing that it could set a damaging precedent for political interference in US capital markets.
A draft statement of administration policy warns that the sanctions provisions in the legislation would "set a dangerous precedent for future political interference in capital markets based on labour, environment, non-proliferation or other issues", according to a US official familiar with the document.
The Sudan Peace Act, which passed the House of Representatives on a 422-2 vote in June, is aimed in part at punishing a handful of foreign companies that are pumping oil from southern Sudan, including PetroChina, the Chinese oil company, and Talisman Energy of Canada. Various independent reports have found that the oil revenue is helping the Khartoum regime finance a brutal war against southern rebels.
The House bill also contains a less severe alternative, also opposed by the administration, that bars from US stock exchanges any company doing business in Sudan unless it fully discloses to investors all its activities in that country.
The Senate last month quietly passed a companion measure favoured by the administration that dropped both of those controversial provisions. A House-Senate conference to iron out the differences is expected to be convened after legislators return in September.
The administration has made ending the war in Sudan one of its foreign policy priorities, and President George W. Bush has promised to name a special envoy to Khartoum. But if Congress approves the House version of the bill when it returns in September, Mr Bush could be forced into the awkward position of vetoing a bill that has strong support from a range of important constituencies, including religious conservatives and the congressional black caucus.
Nina Shea, the director of the Centre for Religious Freedom, a Washington human rights group, said that "Sudan is the litmus test for human rights policy under the Bush administration". Without the capital markets provisions, she argued, the US would have no leverage to try to force the regime in Khartoum to end the war against Christians in southern Sudan.
Rep. Donald Payne, who chairs the international relations task force of the congressional black caucus, said the provisions are the most powerful tool available to the US. The caucus's 36 members sent a letter last Friday to Tom Daschle, the Senate majority leader, urging him to accept the House version of the bill.
The measures have drawn strong opposition from Wall Street investment banks, which fear that the sanctions would set a precedent that could drive foreign companies to seek listings outside the US.
The administration's draft critique is wide-ranging. It argues that the measures would do nothing to curb the flow of oil revenue to the regime in Khartoum. It also says the measures would anger US allies in Europe and Africa and damage prospects for international co-operation to help end the civil war.
But its largest concern is the potential effect on US markets. The measures would be "significant negative departures from existing policies governing our capital markets" and would create "fundamental economic and policy problems", the draft says.
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