There are new skeletons in the closet at Azure Power Global, an Indian solar energy producer in which the Caisse de depot et placement du Quebec has invested half a billion dollars – an investment that has lost feathers since the summer. .
Several questions remained unanswered despite a substantial update released by the company on Wednesday. Three other projects – of the 23 currently in service – show irregularities, while only one was previously the subject of allegations. Azure also warns that its reserves may be insufficient to continue on its way. We also learn that it is the subject of a class action in the United States.
“All the red flags are there,” said Raphaël Duguay, professor of accounting at Yale University, in an interview with The Press.
Azure launched an internal investigation last August in the wake of allegations raised by a whistleblower and the surprise departure of its chief executive officer, who had only been in the job for two months. These elements contributed to the fall of its action on the New York Stock Exchange, which has still not recovered since.
Result: the investment of the woolen stocking of Quebecers, main shareholder (53%), melted to 145 million US. At its peak in early 2021, the investment was worth approximately US$1 billion.
This debacle also splashes the Ontario Municipal Employees Retirement System (OMERS) – the second largest shareholder with a stake of 21.5%.
Despite the persistent vagueness, the two main owners of Azure did not wish to comment on the situation on Wednesday.
Not out of trouble
The internal investigation is still not complete at Azure, but preliminary results suggest that there has been no corruption with local governments in India. Internally, the picture is different. A special committee of the board of directors always combs through the contracts of the last three years to check whether there have been acts of corruption or other irregularities. He is investigating allegations of wrongdoing targeting ex-executives, who have not been named.
“The company has disclosed details of the investigation to the Securities and Exchange Commission and the U.S. Department of Justice and continues to cooperate,” Azure said in its update.
It remains unclear how serious the irregularities regarding the three Azure solar projects the company referenced in its update on Wednesday. The identity of the next CEO and when Azure will finally present the audited results of its last financial year – expected since the summer – remain unknown.
“The deadlines are stretching, and what we are told between the lines is that we find things as the investigation progresses”, explains the director of the Institute on the governance of public organizations and private (IGOPP), François Dauphin.
There seem to be a growing number of fairly significant inconsistencies and weaknesses in internal controls. It’s a bit worrying.
François Dauphin, Director of the Institute for the Governance of Public and Private Organizations (IGOPP)
La Caisse invested in the Indian company for the first time in 2016 and gradually imposed itself, to the point of becoming its majority shareholder in 2020. Azure is the type of investment that fits with the climate objectives of the institution, which aims to hold 54 billion in green assets by the middle of the decade.
“We are looking for green investments, there are not a million of them,” underlines Mr. Duguay. We sometimes have to turn to foreign investments, which are more at risk. The case of Azure highlights the risks to which we are exposed. »
Financial risks
After being downgraded last week by rating agencies Fitch and Moody’s, Azure warns that it may have difficulty meeting its financial obligations. Even if it had 300 million US in its coffers as of March 31, 2022 – information not validated by an external auditor – the company is indebted to the tune of 1.6 billion US. It therefore needs money to repay its loans and finance its growth. On a more positive note, its FY2022 revenue, still unaudited, shows a 21% increase.
According to François Dauphin, this could force the Caisse and OMERS to loosen the purse strings and come to the rescue.
This puts pressure on current shareholders who already have their arms stretched out in the gears.
Francois Dauphin
“It shows how difficult it is to ensure remote governance for companies of this nature,” he said. There are limits to what we can do with people here and move them there. There is still a legal environment to be mastered on site. »
Together holding 75% of the company, the Caisse and OMERS each have a representative on the Board of Directors. Due to the turn of events, the Quebec institution must go further and play a “leading” role, believes Raphaël Duguay.
“She has to get involved in appointing the management team,” says the Yale accounting professor. There has been some turnover among the executives. The Fund must ensure that qualified people are appointed to key positions. »
As for the class action, the document was filed with the New York courts last month. The amount claimed from the company is not specified.
Learn more
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- 2008
- Azure Power Global founding year
source: azure power global
- 2018
- It was a decade after its creation that Azure made its debut on the New York Stock Exchange.
source: azure power global