CNOOC voting recommendation
16 May 2007
| Company: | CNOOC Limited (CNOOC) |
| Stock code: | 0883 |
| Meeting type: | Annual |
| Date of meeting: | 25-May-07 |
| Advice date: | 16-May-07 VOTE NOW |
| Notice of meeting | Click here |
| Proxy form: | Click here |
| Circular: | Click here |
| Voting method: | The Chairman intends to demand voting by poll |
| How to vote: | See our voting guide |
Note to journalists:
We have up to 4 proxy seats available inside this AGM. Please contact
us if you want one.
| Item | Description | Vote |
| A1 | Adopt the accounts | FOR |
| A2 | Declare a final dividend | FOR |
| A3(i) | Re-elect Luo Han as NED | FOR |
| A3(ii) | Re-elect Wu Guangqi as ED | FOR |
| A3(iii) | Re-elect Chiu Sung Hong as INED | AGAINST |
| A3(iv) | Re-elect Tse Hau Yin, Aloysius as INED | AGAINST |
| A3(v) | Authorise directors to fix their own remuneration | AGAINST |
| A4 | Re-appoint auditors | FOR |
| B1 | Mandate the directors to repurchase shares | FOR |
| B2 | Mandate the directors to issue additional shares | AGAINST |
| B3 | Mandate the directors to issue repurchased shares | AGAINST |
Reasons AGAINST
Items A3(iii) and A3(iv)
Webb-site.com advises shareholders to vote AGAINST the re-election of 2 independent non-executive directors of CNOOC, CHIU Sung Hong and Aloysius TSE Hau Yin, because we think they and their fellow INEDs (who are not up for re-election) have done a poor job in advising independent shareholders over the years, telling them to vote in favour of proposals which in our view were not in their interests, and which shareholders have voted down.
Of course, CNOOC's parent is allowed under Hong Kong's Listing Rules to vote on the re-elections of its so-called independent directors, thereby ensuring the outcome, but your protest votes will count. If we can show that the majority of independent votes (excluding shares voted by the parent company) are voted against the re-election of these INEDs, then we will have shown how ridiculous it is to allow controlling shareholders to vote in such elections. You can't be "independent" of the people who elect you. If INEDs are re-elected against the wishes of independent shareholders, then in what sense are they "independent"?
The Listing Rules should be amended to prohibit directors and controlling shareholders from voting in shareholder meetings on INED elections.
Mr Chiu has served as an INED since Sep-99, before the IPO, while Mr Tse has served since 8-Jun-05. On two occasions since then, minority shareholders have voted down resolutions recommended by the INEDs. The first occasion was the Dec-05 proposal to amend the non-compete undertaking which CNOOC's parent gave at the time of CNOOC's IPO. This was voted down on New Year's Eve by 59:41. Eight days later, CNOOC entered into a deal in Nigeria which added 3% to its market value overnight. If the vote had gone the other way, that deal could have been done by CNOOC's parent without approval from CNOOC shareholders, cutting them out of the deal.
Incidentally, CNOOC was advised on the Nigerian deal by Goldman Sachs (Asia) LLC, whose then Vice Chairman Kenneth Courtis was an INED of CNOOC. He had advised CNOOC minority shareholders to vote in favour of amending the non-compete undertaking, although he withdrew his name at the last moment. He left Goldman Sachs in Mar-06 and stepped down from CNOOC on 25-May-06.
The second occasion was the loans to CNOOC Finance which were voted down 52.2:47.8 at the EGM on 30-Mar-07.
In Mr Chiu's biography in the shareholder circular, it is claimed that he "is a director of a listed company in Australia". That company has never been named by CNOOC. We found Mr Chiu in the register of the Law Society of New South Wales under the English name of Stephen. A search for Stephen Chiu in ASX-listed companies finds that he is a director of Globe Securities Ltd (ASX:GTI), which has been suspended from trading on the ASX since 17-Mar-06 for failure to file accounts. Amazingly, after inquiries were made by friends of Webb-site.com in Australia, its accounts for the year ended 30-Jun-06 were finally signed off last Friday and filed with ASX on Monday 14-May-07.
In those fresh accounts, it states that Mr Chiu resigned as a non-executive director way back on 16-Jul-06. However, when the company published its interim report on 7-Mar-07 (for the 6 months to 31-Dec-05), he was still listed as a director. Mr Chiu has discovered the secret of time-travel and was able, some time between 7-Mar-07 and last Friday, to go back in time and resign on 16-Jul-06. This means that the statement in the CNOOC circular is false - he is not a director of a listed company in Australia. Perhaps he could travel back in time and amend the circular too.
As for Mr Tse, he is also an INED of China Construction Bank Corp (0939) and China Telecom Corp (0728) which, like CNOOC, are controlled by the PRC Government. He is also an INED of Linmark Group Ltd (0915) and Wing Hang Bank, Ltd (0302).
A3(v)
You should vote against A3(v), authorising the directors to set their own remuneration, for the same reason that they don't hand out blank cheques to their employees every month and invite them to set their own pay. In our view, directors' fees should be proposed by the board to shareholders for their approval. In the case of INEDs, that should be independent shareholder approval, along with their election.
Incidentally, CNOOC's INEDs are paid HK$950,000 per year, one of the highest rates in Hong Kong, although two of them, Edgar Cheng Wai Kin (appointed 24-May-06) and Lawrence Lau Juen Yee (appointed 31-Aug-05), waived their fees since appointment, which makes one wonder why they do the job.
On 5-Feb-04, the board granted each INED of the time, including Mr Chiu, 1.15m options with an exercise price of $3.152. At last night's price of $6.93 they had an intrinsic value of HK$4.34m.
Items B2 and B3
Webb-site.com urges all investors to vote against the general issue mandate for all listed companies, for the reasons explained in Project Vampire, unless they comply with the recommendations set out in that article. The non-pre-emptive issue mandate allows management to choose the shareowners by allotment of shares. This corrupts the governance mechanism. Shareowners should govern management, not the other way around. If a company wishes to raise cash by issuing shares, then it should do so by rights issue.
If your company offers new shares to other investors at a discount, but not to you, then your company is transferring value from you to the new investors. Their gain is your loss. That's why we believe an issue for cash should be done by rights issue, failing which it should be limited to 5% of existing issued shares and a maximum discount of 5%.
© Webb-site.com, 2007
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