China Hydro sues shareholders; proxy firm ISS gets drawn in

Escalating dispute goes to the US courts

Investors including, indirectly, some of the UK’s largest pension funds, are being sued in an increasingly bitter dispute between Chinese renewables firm China Hydroelectric and a group of “insurgent” shareholders.

It comes as the shareholders met with the proxy advisory firm Institutional Shareholder Services earlier this week to present their case.

New York-listed hydroelectric operator China Hydro filed a complaint this week in the US District Court for the Southern District of New York.

“Specifically, the complaint alleges that the ‘Insurgent Group’ has been secretly planning to take control of the company for an extended but unknown period of time,” China Hydro said.

China Hydro, which has 26 operating hydropower stations in China with total installed capacity of 548MW, claims the investors violated federal securities laws by failing to make timely disclosure of their plans.

Among the defendants named are Swiss Re Financial Products Corp., an arm of the reinsurance giant, and Aqua Resources, the listed water fund backed by the Merseyside and West Midlands pension funds, and the fund’s manager FourWinds Capital Management.

Aqua is in the midst of de-listing from the London Stock Exchange after it breached listing rules, while in July investors rejected its 2011 financial statements; lastmonth it emerged that J.P. Morgan would take a 29.9% in it.

The other shareholders named in the China Hydro complaint are NewQuest Capital, a spin-out of Bank of America Merrill Lynch’s Asian Private Equity team which is backed by large US, European and Asian institutional investors, China Environment Fund, and two family offices: Abrax and IWU International.

The group is seeking sweeping changes to the board of the company and are calling for an extraordinary general meeting.

In a separate development, the shareholder group has put its case to ISS, according to a regulatory filing. In summary, the group alleges “pervasive conflict of interests and corporate governance issues” at senior management and board level. China Hydro is headed by founder and CEO John Kuhns, the part-time novelist who also heads investment boutique Kuhns Brothers.

“We are long-term and active investors in the company, and certain members of the shareholder group have attempted to work with the company to try to create value,” the detailed, 32-page presentation states. They argue Cayman Islands-incorporated China Hydro is attempting to “disenfranchise” its shareholders.

US District Judge Harold Baer has scheduled a preliminary hearing for October 4. China Hydro has called an annual general meeting of shareholders for October 19. Link