Swiss Re and other PRI investors seek change at Chinese hydroelectric firm

Investor group includes pension fund-backed Aqua Resources

A group of investors including an arm of reinsurance giant Swiss Re and UK pension fund-backed Aqua Resources is seeking board changes at New York-listed China Hydroelectric Corp.

The group, which also includes NewQuest Capital Advisors, the Hong Kong-based private equity firm, is fed up with the performance of the company, which develops small hydroelectric power projects in China. They want to replace five of the company’s seven-strong board.

Among their targets is China Hydro’s founder and Chief Executive John Kuhns, the part-time novelist who also heads investment boutique Kuhns Brothers. China Hydro currently has around 548MW of generating capacity in various projects in the provinces of Zhejiang, Fujian, Yunnan and Sichuan.

The investors are working together and have signed a joined filing agreement, according to documents lodged with the Securities and Exchange Commission.

Beijing-based China Hydro last week said its President ‘James’ Tie Li resigned for “reasons unrelated to actions recently taken by certain shareholders”. In a letter sent via law firm DLA Piper, it called the investors’ claims “spurious”.

The shareholder group wants an extraordinary general meeting on September 28 so that their slate of candidates can be voted on, according to their letter to the company.

UN Principles for Responsible Investment (PRI) signatory NewQuest owns 23.9% of the firm’s shares, while fellow signatory Swiss Re, via its US-based Swiss Re Financial Products Corp., has 6.2% and Aqua Resources, which isrun by PRI signatory FourWinds Capital Management, has 1.1%. Aqua’s shareholders include the West Midlands Pensions Fund and Merseyside Pension Fund while, as reported last month, J.P. Morgan is taking a 29.9% stake in the water fund.

China Hydro disputes the investors’ claim that they represented the one-third of the firm’s equity needed to call an EGM. However, it said it would schedule an annual meeting by the end of October so shareholders could vote on the alternative slate of candidates.

The slate includes NewQuest partner Amit Gupta, Moon Kim, founder of Hong Kong-based environmental advisory firm Peony Investments, Jui Kian Lim, Head of Asia for Four Winds and Yun Pun Wong, CFO of Tsing Capital. This is a venture capital firm whose China Environment Fund is a China Hydro shareholder.

“We believe that each of the candidates for director is a highly qualified, proven business leader with familiarity and experience in the China hydroelectric industry,” the shareholders said, adding that they had the commitment necessary to turn the company’s financial performance around.

After a poor 2011, in which China Hydro posted a loss of $55m (€43.6m), the firm swung to a profit of $8.5m on an 84% jump in sales to $56.4m. The firm attributed the improvement to better hydrological conditions in two Chinese provinces.

According to the shareholders, mismanagement by CHC’s board is largely to blame for the loss of shareholder value. Among the mistakes they say the board has made are a $10m hike in administrative costs related to a stock options exchange during 2011 and borrowing at interest rates of up to 22%.