Tuesday, April 03, 2007
CNOOC VOTE STOPS DEPOSIT OF FUNDS WITH STATE PARENT
By Robin Kwong and Tom Mitchell in Hong Kong
Tuesday, April 03, 2007, FT
Shareholders at CNOOC have voted to stop the Chinese oil company from continuing to deposit funds with its state-owned parent – a practice criticised by shareholder activists as risky and unnecessary.
The vote, which took place last Friday, stops Hong Kong-listed CNOOC from continuing to keep funds with CNOOC Finance, the financing arm of its state-owned parent, without additional shareholder approval. CNOOC had about Rmb3.5bn ($453m) with CNOOC Finance at the end of November last year.
One key concern was the fact that there was no explicit guarantee from CNOOC's parent for the funds parked in CNOOC Finance.
“The crux of the issue is risk,” said Dean Paatsch, Asia Pacific vice-president for Institutional Shareholder Services, which does not hold shares in CNOOC but advises institutions that do. “This is not something you would expect a listed entity to do without compelling commercial logic.”
ISS advised investors to vote against the practice.
Corporate governance activist David Webb, a director of the Hong Kong bourse, said the vote was a step towards stamping out the practice of listed companies depositing funds with their parents.
It is common among Chinese state-owned enterprises with Hong Kong-listed subsidiaries, as it gives the parent control over the listed companies' finances.
“It's partly the control-freak mentality of the Chinese government, who haven't yet understood that when you list [a company] it has to be self-standing,” he said. “In the long run [stopping this] will be good for China's capital markets.”
CNOOC, which said it respects the decision, nonetheless contends the deposit arrangements are safeguarded by checks and balances and benefit the company and shareholders.
“They allow the company to handle transactions flexibly and efficiently,” said Fu Chengyu, chairman. ¶ 11:22 AM
Tuesday, April 03, 2007, FT
Shareholders at CNOOC have voted to stop the Chinese oil company from continuing to deposit funds with its state-owned parent – a practice criticised by shareholder activists as risky and unnecessary.
The vote, which took place last Friday, stops Hong Kong-listed CNOOC from continuing to keep funds with CNOOC Finance, the financing arm of its state-owned parent, without additional shareholder approval. CNOOC had about Rmb3.5bn ($453m) with CNOOC Finance at the end of November last year.
One key concern was the fact that there was no explicit guarantee from CNOOC's parent for the funds parked in CNOOC Finance.
“The crux of the issue is risk,” said Dean Paatsch, Asia Pacific vice-president for Institutional Shareholder Services, which does not hold shares in CNOOC but advises institutions that do. “This is not something you would expect a listed entity to do without compelling commercial logic.”
ISS advised investors to vote against the practice.
Corporate governance activist David Webb, a director of the Hong Kong bourse, said the vote was a step towards stamping out the practice of listed companies depositing funds with their parents.
It is common among Chinese state-owned enterprises with Hong Kong-listed subsidiaries, as it gives the parent control over the listed companies' finances.
“It's partly the control-freak mentality of the Chinese government, who haven't yet understood that when you list [a company] it has to be self-standing,” he said. “In the long run [stopping this] will be good for China's capital markets.”
CNOOC, which said it respects the decision, nonetheless contends the deposit arrangements are safeguarded by checks and balances and benefit the company and shareholders.
“They allow the company to handle transactions flexibly and efficiently,” said Fu Chengyu, chairman. ¶ 11:22 AM
