
Public to private divestment in Asia: trends and best practice
The database of Asian mergers and acquisitions (M&As) in high-emission sectors reveals a steady, not increasing, trend from 2020 to April 2024. This shift of high-emission assets from public to private ownership, totalling USD 5-9 billion annually, raises concerns about reduced transparency and accountability in emissions reporting. While not accelerating, this trend has negative implications for investor stewardship and emissions disclosure.
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OVERVIEW
Introduction
Public to private transactions shifting fossil assets from listed markets to private hands have been scrutinised due to concerns over emission transparency and transition accountability. The Anthropocene Fixed Income Institute (AFII) developed a database of public to private M&A transactions in high-emitting sectors in Asia since 2020. The findings indicate a high but stable flow of deals, raising concerns about investor stewardship and emission disclosure.
Significant, but not accelerating
Since 2020, there have been 181 public to private transactions in high-emission sectors in Asia (excluding China), totalling USD 26 billion. Annual volumes ranged from USD 5.6 to USD 8.6 billion. This activity does not appear to be accelerating and reflects broader cyclical trends in M&A. The most active acquirers are the US, Japan, India, and Australia, targeting assets mainly from Japan, Australia, India, and South Korea. Notably, 45% of identified transactions do not disclose deal values.
Notable transactions
- Hitachi Metals: Bain Capital acquired a 53% stake in Hitachi Metals for USD 7.5 billion. The company was delisted from the Tokyo Stock Exchange, continuing robust emission disclosure under private ownership.
- Tokyo Gas LNG Projects: Tokyo Gas sold minority stakes in four Australian LNG projects to MidOcean Energy for USD 2.15 billion. Emission disclosure from the new owner, MidOcean, is lacking.
- Sembcorp Energy India Ltd: Sembcorp sold Indian coal-fired power assets worth USD 1.5 billion to Tanweer Infrastructure. Sembcorp financed the transaction with a deferred payment note, and emissions are now reported under scope 3.
- AES and Mong Duong 2: AES sold its 51% stake in the Mong Duong 2 coal plant to Sev.en for approximately USD 396 million. This divestment raises concerns about emission improvements and responsible phase-out.
Divestment: recommendations for best practice
Guidelines for responsible divestment of fossil assets have been proposed by various stakeholders, focusing on pre-deal due diligence, disclosure, emission reduction targets, and decommissioning. Frameworks such as the UK TPT’s transition plan disclosures and principles from Ceres/EDF are notable examples. These guidelines aim to ensure that divestment aligns with climate goals, but application in practice varies.
Buyer’s perspective across a spectrum
Guidelines for buyers of high-emission assets promote pre-deal due diligence, post-deal emission disclosure, emission reduction strategies, and decommissioning plans. Buyers incorporating these guidelines contractually can enhance stakeholder confidence and potentially improve asset management. However, the lack of regulatory mandates means many buyers may ignore these guidelines, focusing on cost advantages.
Investor perspective
Investors can use these guidelines to engage with portfolio companies on stewardship and emission management. Tools like Ceres/EDF’s suggested engagement questions provide a structured approach for investors. Emphasising forward-looking emission measures and comprehensive disclosures can support responsible asset management and phase-out.
Selected Asian deals – assessing the guidelines
Applying the best practice guidelines to notable Asian transactions shows minor evidence of their implementation. For example, Hitachi Metals and Sembcorp transactions demonstrate some level of emission disclosure and reduction strategies, while others like AES’s sale to Sev.en show limited alignment with best practices.
Conclusions
Public to private M&A activity in Asian high-emission sectors has been significant but not accelerating, with concerning implications for investor stewardship and emission disclosure. There is a net reduction in listed high-emission companies in Asia. AFII will continue monitoring these transactions and updating the database. Existing frameworks provide valuable guidance for responsible divestment, but their practical application remains limited.