World's largest sovereign wealth fund excludes Adani Ports & SEZ

Government Pension Fund Global (GPFG), which is the world’s largest sovereign wealth fund and is based in Norway, on Wednesday said it had excluded Adani Ports and Special Economic Zone (APSEZ) —India’s largest port operator —from investment owing to “ethical considerations” concerning the firm’s sale of its port in Myanmar last year.

This comes at a time when the group is in the middle of controversies regarding alleged malpractices in corporate governance last year.

Queries sent to APSEZ did not elicit a response till the time of going to press. Shares of APSEZ ended at Rs 1,352, with a gain of 0.3 per cent on the NSE.
 

This has been the outcome of a decision of the Norwegian central bank, Norges Bank, which has kept out US-based L3Harris Technologies and China’s Weichai Power too. The fund’s ethics council’s statement said: “The Council recommends that  APSEZ be excluded from investment by the Norwegian GPFG due to an unacceptable risk that the company is contributing to serious violations of the rights of individuals in situations of war or conflict.”

According to the council's report, APSEZ has been under observation since March 2022 due to its alleged business association with the armed forces in Myanmar. This comes on the back of APSEZ’s $30 million sale of its port in that country. The sale was then said to have been sealed at a discount of around $120 million. APSEZ told the fund's council that its write-off for the transaction was $152 million.
 

This sale, according to the wealth fund’s ethics council, did not satisfy its metrics of adequate disclosure. The port was sold to a company named Solar Energy, of which no ownership details have been made available.
 

“Lack of information means that the Council cannot establish whether APSEZ has links to the enterprise concerned,” the council’s statement said.
 

According to the council’s correspondence with APSEZ, the port operator had reiterated its disclosure to the Indian regulator that the transaction was not a related-party one.
 

“We worked hard to ensure that the ownership transfer was in the right hands and the port asset is used for the overall development of the people of Myanmar. However, despite our best efforts, we took a write-off of INR 12.73 billion on the transfer of ownership,” APSEZ told the council.

The council concluded that the lack of information, the auditor’s handling of the matter, and the reports of an “absence of transparency” in the company’s transactions meant that the risk of GPFG’s investment in APSEZ was unacceptable.

The project, announced in May 2019, had landed the port operator in controversy after a military coup in February 2021, where accusations emerged of the conglomerate for all practical purposes facilitating the army’s actions after the US had imposed sanctions on the country’s military officials responsible for the coup.

In August 2019, a United Nations fact-finding mission had highlighted the role of foreign businesses in Myanmar’s developments.

“The Mission finds that any foreign business activity involving the Tatmadaw and its conglomerates MEHL and MEC poses a high risk of contributing to, or being linked to, violations of human rights law and international humanitarian law. At a minimum, these foreign companies are contributing to supporting the Tatmadaw’s financial capacity,” the mission’s report said. 

The ethics council report also mentioned allegations of corporate governance levelled against Adani Group in 2023, along with the resignation of its auditor later.

In January last year, Adani shares were in the eye of a storm after US-based Hindenburg Research accused the group of unfair practices, including stock price manipulation, breach of norms surrounding minimum public shareholding, etc.

The group had then denied any wrongdoing.

Following the short-seller’s report (SSR) the value of Adani Group firms had fallen by 65 per cent. However, from the lows on February 27, 2023, the market value of the group has bounced more than two times.

In January, the Supreme Court had disposed of all matters in various petitions including those relating to separate independent investigations on allegations in the SSR. The apex court had also directed the Securities and Exchange Board of India to complete the pending two investigations (22 completed, two pending) and take the matter to its logical conclusion.

In 2017, Vedanta was blacklisted by GPFG over alleged environment and human rights violations. A year before that, it divested its stake in close to 13 Indian companies. The decision was guided by the fund’s tilt away from companies with exposure to thermal power and/or fossil fuels.

The same year, it had also ranked Coal India 98th among 100 companies on human rights performance. 

With inputs from Shreya Jai