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Mystery runs deep in Azure

CDPQ’s half a billion investment in this Indian company has melted down considerably

There are new skeletons in the closet at Azure Power Global, an Indian solar company in which 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 the substantial update the company released on Wednesday. Three other projects – of the 23 currently in service – show irregularities, while only one project was previously the subject of allegations. Azure also warns that its reserves may not be enough to continue on its way. We also learn that it is the subject of a class action lawsuit in the United States.

Raphael Duguay, professor of accounting at Yale University, said in an interview with Journalism.

Azure launched an internal investigation last August in the wake of allegations raised by a whistleblower and the sudden departure of its CEO, who had only been in the position for two months. These elements contributed to the fall of its activity on the New York Stock Exchange, which has not yet recovered since then.

The result: the investment in Quebec Wool Stocks, the major shareholder (53%), melted down to $145 million. At its peak in early 2021, the investment value was around 1 billion US dollars.

This debacle also caused the Ontario Municipal Employees Retirement System (OMERS) to go viral – the second largest contributor with a share of 21.5%.

Despite the ongoing mystery, the two main owners of Azure did not want to comment on the situation on Wednesday.

No trouble

An internal investigation is still incomplete at Azure, but preliminary findings indicate that there is no corruption with local governments in India. Internally, the picture is different. A special committee of the board of directors always scans the contracts of the past three years to check whether there have been acts of corruption or other wrongdoing. It is investigating allegations of wrongdoing against unnamed former executives.

“The company has disclosed details of the investigation to the Securities and Exchange Commission and the US Department of Justice and continues to cooperate,” Azure said in its update.

It remains unclear how severe the irregularities related to the three Azure solar projects the company referred to in its update on Wednesday. The identity of the next CEO and when Azure will finally report audited results for the most recent fiscal year — expected since the summer — remains unknown.

“The deadlines are extended, and what we are told between the lines is that we find things as the investigation progresses,” explains Director of the Institute for the Management of Public and Private Enterprises (IGOPP), François Dauphine.

There appears to be an increasing number of inconsistencies and weaknesses in internal controls. It’s a little worrying.

François Dauphine, Director, Institute for the Management of Public and Private Enterprises (IGOPP)

La Caisse invested in the Indian company for the first time in 2016 and has gradually established itself, to the point of becoming its majority shareholder in 2020. Azure is the kind of investment that fits with the organization’s climate goals, which aim to hold $54 billion in green assets by the middle of the decade. .

“We are looking for green investments, of which there are not a million,” emphasizes Mr. Duguay. Sometimes we have to resort to foreign investments that are more vulnerable. The Azure case highlights the risks we’re exposed to. »

financial risks

After ratings agencies Fitch and Moody’s downgraded it last week, Azure warned that it could struggle to meet its financial obligations. Even if it had $300 million in its coffers as of March 31, 2022 — information that has not been validated by an external auditor — the company owes $1.6 billion. So it needs money to pay off its loans and finance its growth. On the more positive side, fiscal year 2022 revenue, which remains unaudited, shows an increase of 21%.

According to François Dauphine, this may force Caisse and OMERS to untie the bag and bail out.

This puts pressure on existing shareholders who are already stretching their arms out.

Francois Dauphine

“It shows how difficult it is to ensure remote governance for companies of this nature,” he said. There is a limit to what we can do with people here and get them there. There is still a legal environment to master on the site. »

Caisse and OMERS together own 75% of the company, and have a representative on the board of directors. Because of the turn of events, the Quebec Foundation must go further and play a “leading” role, Raphael Duguay believes.

“She has to be involved in hiring the management team,” says the Yale accounting professor. There was some turnover among the executives. The Fund shall ensure that qualified persons are appointed to key positions. »

As for the class action lawsuit, the document was filed with New York courts last month. The amount claimed from the company is not specified.

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  • 2008
    Year of establishment of Azure Power Global

    Source: azure power global

    A decade after its inception, Azure made its debut on the New York Stock Exchange.

    Source: azure power global

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