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China to Require Environmental Checks for Fund-raising

Some types of companies will need to pass an environmental assessment to go public or raise new capital, an official of China's environmental supervisor said in Beijing on Monday.

Pan Yue, the vice director of the State Environmental Protection Administration (SEPA), said that the agency has issued a regulation stipulating that highly polluting companies must pass environmental inspections when applying for an initial public offering (IPO) or re-financing, one major step toward a "green securities policy".

The regulation targeted companies engaged in power generation, steel, cement and aluminum production, and provincial companies classified as energy-intensive or highly polluting. That latter category covers 13 industries, including metallurgy, coal, textiles and paper.

Companies that operate in only one province can seek assessments from local authorities, while those that operate in at least two provinces need SEPA approval, according to the regulation.

The stipulation follows a circular from the China Securities Regulatory Commission (CSRC), which said that companies planning IPOs should include a SEPA assessment with their application.

Listed companies should disclose environmental protection information to investors, under the SEPA regulation.

Such information should specify which new environmental protection laws, regulations and policies could affect companies, possible penalties for violations and major projects that could affect the environment.

If companies must stop production, relocate or close, and their major assets face being frozen due to environmental protection problems, they must also let the public know.

Pan said that the agency would inform the CSRC about those failing to reveal relevant information.

Pan said the rules were necessary because some enterprises might use publicly raised funds to expand production at heavily polluting plants and might fail to fulfill commitments to invest in environmental protection. Such actions would expose investors to risk if the government continued tightening pollution and energy conservation policies.

Meanwhile, SEPA released a list of 10 companies, including state-owned China Coal Energy Company Limited -- which is listed -- that had failed to pass SEPA's environmental assessments. In August, SEPA started nationwide inspections on a trial basis for companies seeking to raise funds.

It had prevented companies from raising more than 10 billion yuan (about US$1.4 billion) on the stock market, according to Pan. He said that eight of the companies corrected their violations and received approvals for fund-raising. The remaining two were still working on the problems.

Besides the "green securities policy", China has introduced two other green policies -- one for insurance, one for credit -- in a bid to solve severe environmental problems through economic measures.

The "green insurance system", which aimed to have all industries with pollution risks insured, will be implemented nationwide by 2015 after a trial period. The goal would be to have insurers compensate victims of environmental accidents, avoid bankruptcy by the polluting company and lessen the government's financial burden.

The "green credit policy" was launched in July. It instructed banks to limit lending to energy-intensive, polluting industries. Under this policy, companies with violations could be barred from getting loans and those with outstanding loans could have their loans called in.

(Xinhua News Agency February 26, 2008)

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