Largest wealth fund may offload $658-millon stake in Indian oil firms

Companies that Norwegian fund is likely to shed stakes in include Oil India, IOC, ONGC, and RIL

The world’s largest sovereign wealth fund may exit oil and gas investments in India such as Oil India, Indian Oil Corporation, Oil and Natural Gas Corporation (ONGC), and Reliance Industries (RIL).

The total value of Norwegian Government Pension Fund Global’s oil and gas investments in India is estimated at $657.6 million. This figure is based on an analysis comparing the December-end portfolio of the fund and companies across the world on the fund’s divestment list.

The announcement with regard to the exit was made on Friday. “Exploration and production companies will be phased out from the fund gradually over time, and plans will be prepared in consultation with Norges Bank, after the Storting’s (national legislature’s) deliberation on the white paper,” said Friday’s statement.

The move comes even as the global oil and gas sector identified future risks to access capital because of a movement to divest from the fossil fuel industry. It makes sense for the fund to look at non-oil investments, said U R Bhat, director at Dalton Capital Advisors (India). “It is anyway completely exposed to oil. The whole fund has been created out of selling oil. So, there’s no point of further investment in oil. It has to diversify,” he said.

How quickly the world can turn away from the oil and gas industry for its energy needs still remains to be seen, according to Piyush Garg, chief investment officer at ICICI Securities. But, it can help the larger cause of the environment if large investors choose to put more capital in less polluting industries, he added. “It’s a positive thing,” he said.

The move gains significance in the context of a larger global trend among institutional investors stepping away from providing capital to the industry.

Global oil company Royal Dutch Shell, in its annual report, mentioned the move (of exiting oil and gas) as a future risk, pointing out that even the World Bank has announced plans to stop providing capital to upstream oil and gas companies in 2019.

“Additionally, some groups are putting pressure on certain investors to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access equity capital markets. Accordingly, our ability to use financing for future projects may be adversely impacted. This could also affect our potential partners’ ability to finance their portion of costs, either through equity or debt,” said the 2017 report.

Institutional investors with assets of over $6 trillion have committed to divest from fossil fuels, according to consulting firm Arabella Advisors, in its 2018 report titled, ‘The Global Fossil Fuel Divestment and Clean Energy Investment Movement.’

“Today, nearly 1,000 institutional investors with $6.24 trillion assets have committed to divest from fossil fuels, up from $52 billion four years ago,” it said.