Publish Date: Sunday,10 August, 2008, at 08:35 AM Doha Time

Technicians working at Giad Automotive assembling plant. The company holds licences to manufacture vehicles for Hyundai, Renault and Man LONDON: A Sudan-owned domestic car and truck maker, Giad Automotive Industry Co Ltd, has withdrawn plans to list in Dubai directly, a decision that comes after some brokers refused to advise the deal over fears of US pressure. The withdrawal shows how US sanctions are hindering moves by countries under US sanctions to raise funds abroad even outside North America. At a time of recession fears in Western Europe and the US, Giad Automotive’s initial public offering provides a rare opportunity to invest in the oil-rich, fast-growing Sudanese economy without stepping foot inside the war-torn African country. But investors in Giad Automotive Industry Co Ltd, which holds licences to manufacture vehicles for Hyundai, Renault and German truck maker Man, will hold stock in a company that the US government says contributed to the Darfur conflict and is linked to the Sudanese military. Sudan state-owned Giad Automotive, which was put under US sanctions in May 2007, is set to unveil plans for an IPO in Khartoum, weeks after Sudan’s president, Omar Al-Bashir, was indicted for war crimes by the International Criminal Court. The biggest and most profitable operation in Sudan’s state industrial complex, Giad Automotive assembles as many as 12,000 vehicles a year. The car manufacturer is tapping into East Africa’s largest oil producer and one of the world’s fastest expanding economies, where the gross domestic product is growing 10% a year compared to 3% in Western Europe, fueled by the rapidly rising crude price. But the planned listing has already faced difficulties. After announcing last October it would launch its IPO in Dubai, Giad now has had to withdraw plans to list directly on the Dubai Financial Market. Instead Giad says it will list on the Khartoum Stock Exchange only, and through that exchange’s co-operation agreements with the DFM, Giad would gain access to international investors. The DFM said it had no information on Giad. Under a co-operation agreement announced earlier this year, Khartoum-listed stocks are traded in Dubai and the Giad shares would likely be included in some DFM indexes – meaning that anyone investing in Middle Eastern industrial indexes might inadvertently pick up this stock as part of a broader sector. But Giad’s example shows how US sanctions can complicate not just oil and gas investment, but also other industries in countries like Sudan and Iran. “We were hoping the listing on the Dubai stock market would go smoothly but there were some set backs,” said Ahmed Osman, director of administration at Giad Industrial City, which has oversight over Giad Automotive. Osman didn’t specify what the setbacks were and couldn’t be reached again for clarifications. But people familiar with the IPO deliberations said that at least two Middle Eastern brokerages, one in Abu-Dhabi and the other in Dubai, refused to advise the IPO due to concerns over the US sanctions. “The compliance department told (the Dubai broker) to say no” because of fear the US could put pressure either on the Dubai government or over any broker engaged in the listing, one of the people said. The IPO is already off-limits for US investors. “US persons are prohibited from engaging in any transaction with Giad Automotive,” a US official familiar with Treasury regulations said. But the US sanctions on Giad also mean that ownership of the Giad Automotive stock may trigger specific reporting obligations for investors from other countries and could subject them to US government scrutiny, according to US officials, lawyers and international human rights advocates. European banks with business in the US could participate in the IPO of a sanctioned Sudanese company without running foul of US regulators as long as the banks make sure “that no US individuals or entities are involved (in the Giad listing) and the funds (used for subscription in the IPO) do not flow through the US banking system,” said Michael Burton, a Washington-based lawyer with Arent Fox who specializes in sanctions. But Giad investors “may have to disclose their involvement with the embargoed country, potentially including their participation in the IPO, to shareholders in accordance with the expectations” of the US financial watchdog, the Securities Exchange Commission, Burton said. A SEC spokesman said that a company listed on any US stock exchange might have to disclose its stake in a sanctioned company such as Giad if the regulator decides that an investor needed that information “to make an informed decision about an investment” in the US listed company. Since the September 2001 attacks on the World Trade Center, the SEC has broadened its enforcement of disclosure requirements for US-listed companies that deal with countries under sanctions, sanctions lawyers say. That means that US-listed companies have to make extensive disclosures about their relations with sanctioned countries. Subscribers or advisors to the Giad IPO could also be publicly taken to account by human rights organisations. Any investor connection with killings in Darfur “could attract even worse publicity on the world stage” that investing in other countries under embargo, Burton said. Indeed, a key sticking point for the brokers in talks with Giad was its reported ties to Sudan Defense Ministry contracts. In February 2005, Indian vehicles maker Ashok Leyland said in a press release that Giad Automotive was to assemble its army trucks destined to the Sudan Defense Ministry. An Ashok Leyland spokesman confirmed on Thursday it received the 2005 Sudan order but said the vehicles were never exported and “were not meant for defense use.” Giad Automotive is also part of a larger industrial complex, Giad Industrial City, which a May 2007 US executive order said “has supplied armoured vehicles to the Sudanese government for military operations in Darfur.” A January 2008 State Department background note said that “in recent years, the Giad industrial complex introduced the assembly of small autos and trucks, and some heavy military equipment such as armoured personnel carriers and the proposed “Bashir” main battle tank.” The “Bashir” is the country’s first domestically made military tank. At the time of Giad Industrial City inception in 1997, the City was 24% owned by Sudan state-owned Military Industry Corp, the maker of the “Bashir” tank, according to the companies’ website. The rest was controlled by another government organisation, Sudan Master Technologies Engineering Co Ltd, which is also under US sanctions. Tahir el-Faki, a leader in the Darfur rebel group Justice and Equality Movement, said some of the “Bashir” tanks have already moved into Darfur. Nobody replied at the offices of Giad Industrial City, Sudan Master and Military Industry Corp. Giad Automotive manufactures civilian vehicles such as the $15,000 Accent passenger cars licenced by Korea’s Hyundai Motor Co, to $100,000 heavy-duty trucks licenced by Germany’s Man and France’s Renault for sale in Sudan. – Dow Jones Newswires

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