Mar 05 2008
what do environmental regulations and IPO’s have in common?
Up until recently, environmental regulations had nothing to do with your Chinese IPO. They had plenty to do with your business practices, compliance with existing laws, and hiring of environmental consultants. They had even more to do if you were a foreign company doing business in China because the regulators were targeting you and not your Chinese domestic competition. (which was polluting like there was no tomorrow) At least, that’s what the standard business person would’ve thought until recently. Not any more. It appears the Chinese government has decreed that companies going public need to pass environmental regulations. And guess what? This affects Chinese companies.
So if you thought going public was hard enough already to go public, it just got a bit harder. (okay, maybe it isn’t that hard to go public when the economy is still booming) Here is a translation from China Digital Times from a 21st Century Herald article that is all in Chinese:
The State Environmental Protection Administration on Feb. 25 issued an official regulation on environmental monitoring of public companies, placing a hurdle for firms that plan to go public that must be overcome along with their applications to the securities regulator. The law also requires public companies to disclose important information about their environmental performance; environmental failings will have significant consequences. The law will target heavily polluting and energy intensive sectors with an annual listing of environmental performance index and ranking.
Since the second half of 2007, SEPA has finished an environmental review of 37 companies and said “no” to 10 public listing applications or reapplications on their prospectuses. On Feb. 25, an official with the SEPA pollution control department said that eight of the ten firms have passed the environmental review reassessment.
Vice Minister Pan Yue of SEPA notes that environmental monitoring on public companies in China is still weak and the result has been that heavily polluting and energy intensive firms have been able to expanded their operations without delivering their environmental promises after going public. We still need to see how effective the “green securities act” will be in cleaning up the records of China’s major public company polluters.
Below is a list of companies whose applications or reapplications to go public failed SEPA’s first environmental review:
1. Hebei Weiyuan Biochemicals Holding Ltd.
2. Guangdong Wanxing Inorganic Pigments Holding Ltd.
3. Guangdong Ta Brand Group
4. Shandong Chenming Paper Group
5. Gansu Qilian Mountains Cement Group
6. Longyuan Construction Group
7. China Central Coal Energy Holding Ltd.
8. Sichuan Northern Nitrocellulose Holding Ltd.
9. Purple Gold Mining Holding Ltd.
10. Anhui Conch Cement Co. Ltd.
What does this mean? On top of your team of Chinese accountants, bankers/finance people, and lawyers, you will now need an environmental consultant/scientist to help you go public in China. Yes, it is more costly in the long run, but hopefully will be less costly on your life expectancy if pollution levels go down as a result of such regulations. I have a feeling those who will benefit most from this change are the environmental consultants in China.
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