Are Hong Kong bankers clearing a path for forest destruction?

John Berthelsen

22 March 2007

Did major investment banks forget their own forest protection guidelines in the rush for IPO fees? Environmental protesters are charging that HSBC and Credit Suisse have violated their own forest sector guidelines in cooperating in the public listing of a Malaysian logging giant with a record for environmental despoliation. Samling Global Ltd has long been criticized for the destruction of tropical rainforest across the world and in fact early this year lost its only Forest Stewardship Council (FSC) certification less than a year after it was issued. It began trading on the Hong Kong Stock Exchange on March 7 at a 15 percent premium to its IPO price, giving it market capitalization of US$1.2 billion. Credit Suisse managed the public listing as global coordinator and was joined by HSBC and Macquarie Securities as joint bookrunners, the institutions responsible for structuring and pricing public offerings and bringing in other underwriters. Both HSBC and Credit Suisse subscribe to forest sector guidelines that seemingly preclude assisting in an IPO for companies with records like Samling’s. Credit Suisse said in a statement that the bank's business relationship with its client “was put through a comprehensive review process, during which compliance with local environmental regulations and international standards of sustainable management of natural tropical forests was a particularly important issue. We concluded, in line with the other banks involved, that the client's activities are in compliance with these standards. Controversial topics were raised with the client and discussed.” Samling’s Guyana subsidiary lost its FSC certification two and a half months ago, on Jan. 7. It remains suspended although, according to its prospectus, “we continue to produce and sell logs from our forest concession, but such logs will not be sold as FSC-certified.” Asked about Samling’s environmental record, a spokesman for HSBC in Hong Kong said any discussion would violate client confidentiality and referred to the bank’s website. In 2003, according to the website, “HSBC adopted the Equator Principles, a set of voluntary guidelines, which apply to project financing. In accordance with this, and our general approach to lending, HSBC will follow the International Finance Corporation Safeguard Policies in respect of forestry.” In particular, the bank said, “We will not provide facilities and other forms of financial assistance, including any involvement in debt and equity capital markets activities and advisory roles, in respect of commercial logging operations in: - Primary Tropical Moist Forest - High Conservation Value Forest - Logging operations that are in violation of local or national laws in respect of illegal logging - Logging operations that include any species listed in the Convention on International Trade in Endangered Species of Wild Flora and Fauna. In its prospectus for the IPO, Samling said that “we have achieved numerous internationally recognized certifications for different parts of our forestry management and production operations.” In particular, the company said, it was the first privately managed company in Malaysia and the only one in Sarawak to have obtained forest management certifications covering 56,000 hectares of Malaysian timber stands from the Malaysian Timber Certification Council. On the ground, however, environmentalists say, the company’s operations make a mockery of the certification scheme, and the chapter on risk factors in Samling’s prospectus notes that “as of the latest practicable date, we had not obtained any forest management certifications for our tree plantations in Malaysia of a gross area of approximately 438,000 hectares, or for the gross area of approximately 445,000 hectares in Guyana over which we hold harvesting rights…” If the company is unable to reinstate the existing certifications or successfully obtain additional ones, “we may not be able to compete effectively in the sale of certified wood products against competitors able to sell certified wood products in greater amounts in markets with demand for such products, thereby adversely affecting our business, revenues and results of operations.” Samling in particular has carried on a three-year confrontation with the indigenous Penan tribe of Sarawak over the blocking of a timber access road into a logging area that has been called one of Malaysia’s last primary forests. The blockade was broken a few weeks ago when police accompanied by Samling’s logging tractors and bulldozers came in to knock down the barricade. Ironically, the breaking of the blockade came just five days before representatives of the three governments with jurisdiction over the ecological jewel that is the island of Borneo signed what they called the “Heart of Borneo” declaration, promising to conserve one of the most important centers of biological diversity in the world. The pact was designed to conserve and provide sustainable management for almost a third of the island -- approximately 220,000 square kilometers of equatorial rainforest. The Samling group is well connected, particularly in Sarawak. A whole panoply of friends, family members or political allies of Abdul Taib Mahmud, the long-serving chief minister of Sarawak, sit on the boards of Samling timber concessions. Yaw Tek Seng, the ethnic Chinese patriarch who heads Samling Global, is related by marriage to a Sarawak state minister. Yaw is close to James Wong, the now-retired Sarawak State Minister for Environment and Local Government, who for many years has been roundly criticized by environmental pressure groups for his closeness to the timber companies that have been accused of raping the North Borneo state. As an indication of Samling subsidiaries’ closeness to Malaysian authorities, according to the Forests Monitor, a watchdog website dedicated to monitoring logging companies, when 70 Penan tribesmen went to Samling Plywood’s operations to petition them to cease operations on their ancestral land, “the Penan were met by a group of the (Sarawak) Field Police Force, armed with machine guns, tear gas and knives, who verbally abused the Penan and then assaulted and beat them with machine gun butts, boots and knives,” and arrested four of them for trespassing. The Samling group of companies, headed by the family of timber tycoon Yaw controls an estimated 4 million hectares of tropical forest in Sarawak, Guyana, Cambodia, China and other areas. In the past the company was also active in logging in Papua New Guinea, where it was allegedly involved in illegal logging activities. According to the prospectus it issued at the time of the IPO, it has business operations in Malaysia, Guyana, New Zealand and China and sells its products in more than 30 countries and territories. According to its website, the FSC was created in 1993 to establish standards for promoting global sustainable harvests in the world’s forests. Its standards have been applied in over 57 countries across the world – including Guyana, where a Samling subsidiary in January 2007 was proved to be noncompliant with the standards and its certification for its forest concession was suspended. Samling subsidiaries have also been blamed by environmentalists and non-government organizations for being involved in illegal logging in Cambodia and Papua New Guinea. As long ago as 1996, the watchdog website, Forests Monitor, stated the company was involved in attempting to obtain signatures on so-called “goodwill agreements” from Sarawak communities that would allow it to operate with impunity. Logging operations have been described as having destroyed land, fruit trees and other forest products and polluted rivers, the publication charged. In Cambodia, where the pressure group Global Witness cited Samling with buying illegal timber cut in the Snuol Wildlife Sanctuary, the Ministry of Agriculture charged Samling’s subsidiary SL International, with starting to cut without receiving a permit, cutting in areas not approved by Forestry Department officials, cutting undersized trees and continuing to exploit its concessions despite a 1996 ban on logging. Although Samling hasn’t been implicated by name in reports of abuses in Papua New Guinea, it is one of the biggest logging companies in the jungled country, whose tropical rainforest encompasses land more than twice the size of the British Isles. According to a report funded by the British government in 2005, quoted by Greenpeace: • People have been forced to sign (logging) agreements at gunpoint and threats of imprisonment and even death. • Armed police officers have backed logging company employees • Police ‘mobile squads’ quell any industrial unrest among logging company employees. • Firearms-toting logging company managers threaten and intimidate local people. • Local people face torture, physical abuse and unlawful detention by police officers ‘employed’ by the logging company. • Female employees have allegedly been raped by logging company managers and police.