World's No1 dam builder will raise 13.5 billion yuan in Shanghai share
sale - but some projects may be costly
Toh Han Shih
South China Morning Post, Oct 18, 2011
Sinohydro Group, which lists in Shanghai today, faces growing political
and financial risks with its rapidly increasing international business.
The Chinese state-owned enterprise is the world's biggest dam builder,
having built two-thirds of the country's dams - and half of the world's.
It has continuing and completed projects in over 50 countries.
Sinohydro will issue three billion A shares at 4.50 yuan each, raising
13.5 billion yuan (HK$16.37 billion) from its Shanghai offer, the
company has said. The funds raised will be 22 per cent less than it had
previously aimed for because of weak market conditions, but it will
still be one of Shanghai's biggest IPOs this year.
"In its overseas operations, the company is susceptible to political,
economic and diplomatic risks," warns Sinohydro's prospectus, citing as
an example the raging civil war in Libya, where the company had 2.22
billion yuan of project assets in February.
"The standards of international projects are those of the developed
nations of Europe and USA, especially in quality control, safety and
environment, which are very demanding. It is difficult for China's
practices to meet such high standards. There are deficiencies in many
areas between China's technical standards and international standards,"
the prospectus says.
According to Grace Mang, the China global programme co-ordinator for
non-governmental organisation International Rivers, the company is
"engaged in some destructive dam projects".
She said Sinohydro is currently completing feasibility studies for the
Pak Lay dam planned on the Mekong River in Laos. The dam would threaten
the Mekong River's ecology and the well-being of millions of people who
depend on the river for food, income and transport, she said.
Sinohydro is also conducting feasibility studies to develop the Tasang
dam on the Salween River in Myanmar, Mang said.
"The dam faces violent local opposition. Over 50,000 people have
petitioned for the suspension of the dam," she said.
"As Sinohydro has quickly become the market leader in the global
hydropower sector, it is exposed to greater scrutiny by media and
international civil society for its participation in controversial
projects.
"Sinohydro's reputational risks are likely to increase as it takes on
projects where it has more responsibilities as a financier and
developer," Mang said.
In the past two years, it has announced two "build, own and transfer"
projects, including seven dams worth US$2 billion along the Nam Ou River
in Laos.
It is drafting a sustainability framework for its global operations,
which is deemed important in helping the firm overcome its deficiency in
international standards, and will demonstrate the company is a
worthwhile investment, Mang added.
The world has not fully recovered from the 2008 financial crisis, warns
Sinohydro's prospectus: "If a major reversal occurs in international
financial markets, the company risks a decline in international and
domestic demand."
Sinohydro's new overseas contracts jumped 53.6 per cent to 45.7 billion
yuan last year. During the first half of this year, it won 22.1 billion
yuan of overseas contracts.
International revenue accounted for 26.6 per cent of Sinohydro's
turnover in the first half, which totalled 50.68 billion yuan, while net
profit amounted to 1.82 billion yuan.
hanshih.toh@scmp.com
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