Was our Caisse de dépôt created to launch businesses or to make investments? Can she imitate the ingenuity and passion of entrepreneurs, who give themselves body and soul to make their project a success with their own money?
I ask the question because the Caisse has undertaken a major shift, which often makes it a business operator today, in the same way as an entrepreneur. And that involves several billion dollars in contributor funds.
In fact, for the past five years, our institution has become the controlling shareholder (more than 51% of the shares) of seven commercial enterprises. It did so by using various interstices of its law, whereas in principle, the Caisse must limit its holdings to 51%, or even 30% of a company.
And among those companies she took control of is Indian energy producer Azure Power Global, which is now facing significant difficulties amid allegations of wrongdoing.1. And another such investment turns sour, in Mexico.
The Fund explains to me that it legitimized the takeovers in the seven companies by resorting to specific measures in its law. However, this recourse has limits, since the Caisse has asked the Quebec Ministry of Finance to modify its law to normalize the situation.
The amendments are in the current Bill 7, which is expected to pass in the coming months. Changes will not be retroactive.
This change in the law, the Caisse is asking for it to take advantage of the good returns in infrastructures linked to renewable energies, among other things, but also to extract “additional premiums of operational value” from these investments, in short to pocket the kind of profits that makes an entrepreneur.
And that’s exactly where I wonder. The Caisse’s original law aimed to prevent, among other things, the institution from playing the role of entrepreneur, from taking the risk of “operating” a business, considering that it should rather content itself manage investments or support entrepreneurs2. Is it wise to allow it today? If so, under what circumstances?
Over the years, the law on the Caisse has been modified in such a way that it has become Kafkaesque and today the Caisse manages to justify a considerable number of takeovers.
In January 2022, for example, the institution increased its stake in the Indian producer Azure to 53%, beyond the maximum limit of 51% normally provided for in its law.3. The Caisse has invested half a billion in the adventure since 2016, an investment that is worth less than 200 million today.
To justify this, the Caisse explains to me that it relied on a provision of its law which provides for exceptions for companies that are starting up, reorganizing or in transition and4.
“It is under this exception (relief) that we justified the derogation from the detention limit. It is therefore the succession of the founder of the company [Azure] and its transition to a company not managed by its founder,” wrote Caisse spokesperson Maxime Chagnon to me.
PHOTO ANUPAM NATH, ARCHIVES ASSOCIATED PRESS
La Caisse is the main shareholder of Azure Power Global.
Very good. Except that the founder of Azure left the management of the company in July 2019, more than two years before the transition to 53%, in January 2022.
Anyway, two months later, in March 2022, the Quebec Ministry of Finance announced in its budget that it would modify the law of the Fund to jump this 51% limit for the infrastructure sector, in particular that considered to be a carrier of renewable energies, of which Azure is a part.
The Caisse will therefore be able to hold 100% of such a company, as for real estate, once Bill 7 is adopted, in the coming months of 2023.
End of the case? No. While digging, I discovered that the Caisse has exceeded 51% ownership in six other companies for a few years already. Of the seven investments (including Azure), five were made under the former administration of Michael Sabia and two under that of Charles Emond.
Caisse spokesperson Maxime Chagnon says the seven investments comply with Caisse law. However, he said he might not indicate which specific exceptions of the law were used for each investment, although he might do so for Azure.
“We can’t give details so as not to reveal strategic information on private companies,” he told me on the phone.
Regarding the change in the law requested from the Ministry of Finance, Maxime Chagnon explains to me that “the objective is to normalize a detention that is currently carried out under an exception. Instead of taking advantage of an exception for 5 years, we want to be able to hold positions of control [à long terme] in infrastructure companies in sectors of the future”, he wrote to me.
In my understanding, corporate takeover is a trend in the venture capital industry, especially for emerging countries.
The reason ? Governance is generally not as rigorous in these countries, and an institutional investor like the Caisse can see to it more when it takes control of companies, thus reducing this risk. Maxime Chagnon also mentions the possibility of “even more influencing the company’s long-term ESG orientations”.
In the case of the Caisse, however, this argument from emerging countries does not explain everything. Of the seven companies, five are in the UK, US, Spain and Switzerland and only two are in, say, less western countries (India and Mexico).
Couldn’t the Caisse have contented itself with playing the role of financier rather than entrepreneur?
2. Originally, the law prohibited the Caisse from holding more than 30% of the shares of a company. In addition to wanting to prevent the Caisse from playing the role of an entrepreneur, we did not want the Caisse, with its mountain of capital, to become a direct competitor of a private sector company, which might have been considered unfair. , particularly in the small Quebec market. Over time, the 30% limit was raised to 51% in some cases, and ownership of real estate assets was permitted at 100%.
3. The stake increased to 53.4% in February 2022. The Caisse has also held beyond the 30% limit since October 2018 (then increased to 40%).
4. Other exceptions are provided for in its law for gas companies (Énergir) and for the REM, among others.
Seven companies controlled by the Caisse
The Caisse de depot et placement du Quebec has invested billions of dollars to take control of seven commercial enterprises in recent years.
In addition to the Indian energy producer Azure Power Global, in financial difficulties, the Caisse exceeds 51% ownership in six other companies. However, another of these investments went wrong.
In early 2018, la Caisse took a stake of more than 51% in Tenedora de Energía Renovable Sol y Viento, from Mexico. With a value for the Caisse estimated between 150 and 300 million as of December 31, 2018, the investment was worth around 10 times less in the most recent statement available (December 31, 2021), i.e. between 10 and 30 million. La Caisse still owned 67.1% of the company as of December 31, 2021.
It was this investment in Tenedora that forced Caisse executives to meet with Mexico’s President Andrés Manuel López Obrador last month to try to settle a dispute, along with Justin Trudeau, according to news agencies.
Two other of Caisse’s controlling positions are in the international renewable energy sector.
In May 2018, la Caisse became the controlling shareholder (52%) of Invenergy Renewable, of Chicago. It has invested more than $1 billion in it since 2014 and held 59.4% in the most recent statement available (December 31, 2021). This investment was worth more than 1.5 billion as of December 31, 2021.
PHOTO FROM VELTO RENEWABLES WEBSITE
The Caisse owns 100% of Velto Renewables.
Since 2020, la Caisse has also owned 100% of the Spanish company Velto Renewables. The investment was worth between 300 and 500 million as of December 31, 2021.
Outside the renewable energy sector, la Caisse is also the majority shareholder of three other companies, including two since 2017.
The first, in Ireland, does aircraft financing and is called Einn Volant Aircraft Leasing Holdings, in which the Caisse has a 90.5% stake. The second is Datamars (65.1%), in Switzerland (livestock management).
PHOTO FROM DATAMARS WEBSITE
The Caisse has a 65.1% stake in Datamars, which operates in livestock management.
A third company, Kiwi Holdco Cayco (FNZ), from the United Kingdom, operates in the fintech sector. Entry into the capital in 2018, the Caisse had a 69.1% stake as of December 31, 2021.
Specific provisions of the law
Caisse spokesperson Maxime Chagnon says the seven investments were made under specific provisions of the Caisse’s law that allow the usual limits of 51% to be exceeded in certain cases.
None of these seven international investments has a time limit for the position of control, Mr. Chagnon tells me, except Azure (five years), according to the specific provisions of the law used for these investments.
The REM and Énergir are two of the Caisse’s investments in Quebec that benefit from exemptions from the law allowing the institution to hold more than 51% without a time limit.