Sovereign Wealth Fund Weekly News Roundup — Governance in the Spotlight

September 11, 2015 by Loch Adamson

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Petronas Towers

The Petronas Towers in Kuala Lumpur. Image by Luke Watson.

Sovereign wealth fund governance is once again under scrutiny, as the fallout from the 1MDB controversy reaches Abu Dhabi and Singapore’s opposition party calls on GIC and Temasek to be more transparent. Elsewhere, Oman’s SWF invests in Vietnam and Middle Eastern funds finance hotel projects.

The Mysterious Case of the Missing $1.4 Billion

As their assets rise, sovereign wealth funds encounter new challenges — not least heightened scrutiny of their governance standards. 

This week the controversy engulfing 1Malaysia Development threatened to spread to the Middle East. Officials at the $66.3 billion International Petroleum Investment Co. (IPIC) said they had no record of a $1.4 billion payment 1MDB says it made to the Abu Dhabi fund, according to the Wall Street Journal

1MDB is currently under investigation after entities linked to the state development fund allegedly made payments worth hundreds of millions to Prime Minister Najib Razak's private bank accounts, although Razak denies any wrongdoing. The episode has shed light on 1MDB's long-standing business relationship with IPIC and its subsidiary, Aabar Investments. 

1MDB's financial statements and a Malaysian auditor's report show that the organization made a collateral payment of $1.4 billion to Aabar in 2012 after IPIC agreed to guarantee one of its bond issues, although sources at IPIC, who were not employed by the fund at the time, told the WSJ they are unable to find any record of this payment. IPIC has launched an internal investigation into the matter. 

Governance was also under discussion in Singapore this week. Chee Soon Juan, the leader of the opposition Singapore Democratic Party (SDP), told local media that the $343 billion sovereign wealth fund GIC and the $194 billion state investor Temasek Holdings should be more transparent. The SDP has previously called on Temasek to completely divest its holdings in government-linked companies, except where doing so would have security implications. 

Temasek’s Tesco Deal

Temasek was part of a consortium that agreed to buy Seoul-based Homeplus, British supermarket giant Tesco’s South Korean unit, for £4.24 billion ($6.5 billion). 

In a statement released on Monday, Tesco confirmed it had reached an agreement to sell the retail chain to an investor group led by South Korean private equity firm MBK Partners. Temasek, the Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board (PSP Investments) are the other participants in the consortium. 

This deal promises to be the biggest ever private equity transaction in Asia — and shows that sovereign wealth funds remain confident about the region’s growth prospects despite the recent turbulence in Chinese stock markets. 

The $34.4 billion State General Reserve Fund of the Sultanate of Oman (SGRF) has also been active in Asia this week. The fund reportedly bought a stake in the Hai Phong seaport in northern Vietnam from state-owned Vietnam National Shipping Lines and signed an agreement to cooperate on water infrastructure investments in the country through one of its subsidiaries, Vietnam-Oman Investments.  

Checking in with Cash

In North Africa and the Middle East, sovereign wealth funds have embarked on projects to redevelop luxury hotels. 

The $175 billion Investment Corp. of Dubai reportedly wants to borrow $500 million to expand the Palm Atlantis resort on the Palm Jumeirah, one of the emirate’s artificial archipelagoes. And in Morocco, Al Ajial Holding, the Casablanca-based subsidiary of the $592 billion Kuwait Investment Authority, is reportedly financing the $72 million renovation of the Mansour Eddahbi Hotel Marrakech, which which will be operated by Swiss hotel group Mövenpick Hotels & Resorts when it reopens later this year. 

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