Big investment by CDPQ in India | Azure’s survival is at stake

A scheme to make “irregular payments” had been developed by former executives of an Indian solar energy producer controlled by the Caisse de dépôt et placement du Québec (CDPQ). There are so many problems at Azure Power Global that its days could be numbered if nothing changes, its internal auditor warns.

These worrying revelations appear in a voluminous report of approximately 595 pages filed by the Indian company with the American stock market watchdog, the Securities and Exchange Commission. In addition to the audited financial statements for the 2022 financial year – expected since last year – it lists the numerous problems identified since the stock market debacle which began a little over a year ago and which caused plunge the value of the Caisse’s investment by some 550 million.

The list of problems is long. Azure is in the red as of March 31, 2022 (see table), its survival is threatened according to its new auditor, it needs money, cannot reach an agreement with its lenders, struggles to meet delivery deadlines , risks being blacklisted by the Indian government agency responsible for renewable energies and is still unable to paint an up-to-date picture of its financial health.

“Certain commitments have not been respected towards certain lenders […], we can read. These events raise substantial doubt about the company’s ability to continue its activities. »

CDPQ invested in the Indian company for the first time in 2016 and gradually established itself, to the point of becoming the majority shareholder in 2020. It invested more than 600 million, which gives it a stake of 53.4%. This investment is almost worthless.

Unable to file its financial statements on time, Azure was delisted from the New York Stock Exchange last July.

On the OTC secondary market on Monday, the stock was trading at US$1.12. This gave a value of 51 million to the block of shares of the Quebec institution. This contrasts with the peak reached at the start of 2021, when the Fund’s investment was worth around US 1 billion.

“Everything indicates that Azure is approaching a situation where it will request additional funding from the CDPQ,” explains Raphaël Duguay, professor of accounting at Yale University, after reading the document. “The Fund is really in a bad situation. »

Questionable practices

Allegations raised by a whistleblower about irregularities and questionable practices at Azure are behind the solar power producer’s downfall. Four projects – out of the 23 currently in operation – were scrutinized by the special committee formed by the company.

“The investigation identified evidence that former executives were involved in an apparent scheme with people outside the company to make irregular payments in connection with a project,” it was revealed.

However, there would have been no irregular “payment or transfer” of money identified by the special committee, it is explained. No further details are provided, in particular on the nature of the payments described as “irregular”.

The project at the heart of the irregularities is not identified, nor are the offending employees. It was not possible to obtain further details from Azure on Monday.

The results of the investigation are “strange” and “nebulous,” believes Mr. Duguay.

Another element that gives Azure trouble: the intransigence of its bankers. The solar energy producer is trying to reach an agreement with them to extend the deadline for submitting its audited financial results to the end of the year. Creditors to whom the company owes US186 million refuse to acquiesce. They could, in principle, request reimbursement of this sum, which would increase the pressure a notch for Azure.

As things stand, it is difficult to see how the company will be able to find the funds necessary to deliver projects whose deadlines are stipulated in contracts. This will generate “significant expenses” at Azure, she warns.

Ultimately, the Fund will have to decide, says the Yale expert.

“She will have to decide [entre] take losses on the investment and dispose of it or continue to invest, underlines Mr. Duguay. We are talking about very high sums. It would be a major investment. I believe that an investor like CDPQ does not necessarily have the expertise and experience to turn around a distressed company like Azure. »

Potential consequences

The company’s setbacks also risk having consequences on its relations with the Solar Energy Corporation of India (SECI), a government company. Azure is experiencing delays and is unable to meet other terms of a 300 megawatt project.

Talks are underway between the two parties, but there is a risk that the CDPQ partner will be “excluded from future contracts” awarded by the Indian agency. The latter could also claim compensation from Azure, which would increase the financial pressure on the latter.

Even though it controls more than half of the company, the CDPQ refrained from commenting on the content of the report on Monday. Azure is a “public company,” she repeats. Since Azure’s stock has been relegated to the secondary market, transactions are reserved for investors who have accreditation or brokers.

“The recent filing [du rapport] is an important step for the company, which continues its work to resolve the issues identified,” wrote a spokesperson for the Caisse, Kate Monfette, in an email.

Alongside the dark portrait that awaits Azure, the chairman of the board of directors, Alan Rosling, chosen by the Fund to take the helm of the board of directors in October 2021, resigned. The reasons for his departure have not been explained. He was replaced by M. S. Unnikrishnan, who was already a director.