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Singapore’s Temasek to rule out investment in Saudi Aramco IPO

Singapore’s Temasek to rule out investment in Saudi Aramco IPO

Aramco is expected to list with a valuation of between $1.1 trillion to $2 trillion later this year

Singapore’s Temasek Holdings has decided against investing in Saudi Aramco’s initial public offering, in part over environmental concerns, according to people familiar with the matter.

The world’s most-profitable company first flagged a public share sale in 2016 and is expected to list with a valuation of between $1.1 trillion to $2 trillion later this year. It’s been courting funds globally to act as cornerstone investors, including Temasek, which had a net portfolio value of S$313bn ($227bn) as of March 31.

But Temasek’s focus on sustainability and environmental, social and governance principles made it more difficult to support Aramco’s share sale, the people said, asking not to be identified because the discussions are private. Temasek has a 2030 goal to reduce the carbon emissions of its portfolio companies by 50 per cent.

A Temasek spokesman declined to comment on talks the firm may have had with individual companies, or the outcomes of any of those discussions. Temasek has highlighted ESG assessments are a key factor in its decision making, alongside commercial considerations, he said via email.

Representatives for Aramco didn’t immediately respond to a request for comment.

Fossil fuels

Temasek International CEO Dilhan Pillay was more direct last month when asked by Bloomberg Radio about which investment areas Temasek was avoiding as part of its focus on sustainability.

“I don’t think we’re going to be investing in fossil fuels,” he said, without referencing Aramco.

Aramco’s IPO is shaping up to be the biggest in history. People involved in the transaction say about 2 per cent of the company may be sold, which could raise $40bn for the oil producer. But some investors may find the price to be excessive, given the weak oil market and the push by many nations to cut their reliance on fossil fuels in favor of electric cars and renewable energy.

Temasek’s stance highlights a growing risk facing fossil-fuel producers. An increasing number of developed-market funds are under pressure to avoid investments that directly contribute to climate change. This could limit firms’ sources of capital, making funding more expensive.

Temasek is one of the world’s largest deal-makers, investing S$24bn in the year ended March alone across a range of asset classes. About 3 per cent of its portfolio is tied up in energy and resources and its ability to invest for the long term makes it an ideal shareholder for many companies.

The move not to back Aramco doesn’t preclude Temasek from making other potentially contentious investments in the future. It’s also a legacy investor in Keppel Corp., which constructs oil and gas rigs.

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