Buffett Sells PetroChina Stake

Buffett sells entire PetroChina stake

From the Financial Times:

By Richard McGregor in Beijing
Published: October 19 2007 04:55 | Last updated: October 19 2007 11:20

Warren Buffett has sold the last of his shares in PetroChina, the Chinese state-owned oil company, but brushed aside suggestions that the sale was in response to a disinvestment campaign over its parent company’s ties to Sudan.

In an interview with Fox Business Network, Mr Buffett said the sale was “based on price”, while admitting that he may have sold a little too early because of recent strong gains in PetroChina’s share price.

He said the stock price had more than doubled in the US since a shareholder meeting earlier this year voted down a proposal for Mr Buffett’s Berkshire Hathaway insurance and investment company to divest from the stock.

California Terminates Iranian Investments

California Governor, Arnold Schwarzenegger, signed a measure to ban public plan investment in Iran. California is home to the two largest pension funds in the United States, California Public Employees' Retirement System and the California State Teachers' Retirement System, with combined assets of $428 billion. Early news reports estimate that the plans will be forced to sell $3.4 billion in assets. The final divestment costs are yet to be determined, but unloading the shares at a conservative cost of 0.25% would cost the plans nearly $10 million.

Capital Goes Where Capital is Demanded

I would guess that Turkish Petroleum Company and its investors will profit majestically from the deal described below. I would also guess that this will not be the last deal that creatively circumvents institutional divestiture efforts.

Turkey to Finance Iran Gas Project Without Partners
REUTERS NEWS SERVICE
October 4, 2007

ANKARA, Turkey -- The financing of a $3.5 billion investment in Iranian gas production will come entirely from a state-owned company, as U.S. opposition has put off foreign investors, officials at the Turkish Energy Ministry said yesterday.

Washington is urging countries to cut business ties with Iran over its failure to suspend its nuclear-energy program, and is spearheading a drive for a third sanctions resolution against Iran in the United Nations Security Council.

The U.S. also plans new unilateral actions as a means to pressure Tehran over its nuclear program, which the U.S. says is aimed at building a bomb and Iran says is for peaceful purposes.

Senior Turkish energy officials, who declined to be named, said the Turkish Petroleum Corp. will start investing in Iran's South Pars gas-field project as soon as a comprehensive agreement is signed in the second half of this month.

Ankara and Tehran signed a memorandum of understanding in July.

"Turkey can completely cover the necessary amount for the investment," one of the officials said. The official said the project had not sought credit from foreign institutions, given their unwillingness to finance projects linked to Iran.

In Washington, State Department spokesman Sean McCormack said he was not aware of the planned $3.5 billion investment, but he reiterated U.S. opposition to such a move.

"In principle, we don't think it is the right time to be investing in the Iranian oil and gas sector given the questions surrounding the activities of the Iranian government pursuing weapons of mass destruction and also being the most significant state sponsor of terrorism," Mr. McCormack said.

Turkish Prime Minister Recep Tayyip Erdogan has defended his government's deal with Iran, saying no country can ask Ankara to give up the relationships it has with energy suppliers.

via: FT.com - France calls for Iran investment boycott

France calls for Iran investment boycott
By Peggy Hollinger and Pan Kwan Yuk in Paris
Published: September 16 2007 23:40

The French government has asked the country’s biggest companies not to invest in Iran, as the tension mounts over Tehran’s nuclear ambitions ahead of a meeting this week of the world’s big powers. Bernard Kouchner, France’s foreign minister, on Sunday indicated that France’s newly elected government had joined forces with Washington to solicit a sort of unofficial boycott of Iranian projects. “We have asked a certain number of our big companies not to respond to Iranian tenders. I think this has been heard and we are not the only ones to have done so,” he said in a televised interview."

I wonder if France's boycott will work any better than the United State's efforts? One must wonder if the message is being conveyed in a straightforward or even possibly uniform manner. Unfortunately, only time will tell, as in the example of Weatherford. I still do not think that story has been fully told.

Loopholes

Weatherford, a U.S. based energy firm, has decided to pull out of Sudan after Fortune exposed the company’s operations in Sudan. To operate in Sudan, Weatherford used a foreign-registered subsidiary staffed solely with non-U.S. citizens which are exempt from U.S. sanctions law. Some have speculated that Weatherford feared bad publicity over legal action. The company “was operating out of an unmarked two-story house” but now will begin withdrawing from the country in an “orderly” fashion. The actual time it will take to unwind contracts and shutdown operations is unknown.

We applaud Fortune for revealing Weatherford’s covert business approaches and for making KLD and other terror free list publishers’ jobs a little easier.

Ohio - Not SO Fast

Earlier this year, it was reported that Ohio's legislature and pension systems had reached an "innovative" compromise to divest one half of their investments linked to Iran or Sudan. The divestment was to be limited to active international equity and fixed income portfolios with year end 2007 stated as a target date.

Several issues came to our mind: what about the other half of the investments linked to Iran or Sudan? What about the other classes of portfolios? It was in our eyes, the worst kind of half measure. We thought that at best, it would be expensive, time consuming, performance detracting, and totally devoid of even symbolic meaning.

Since then, some of Ohio's pension funds have moved in creative and smart ways to limit the impact of the agreement. Retirees and State Employees have rightly complained that their retirements should not be linked to NATIONAL foreign policy. The State Teachers' Retirement System has undertaken what appears to be a thoughtful study to understand the potential divestment costs to the fund and clarify their fiduciary liability. My favorite part of the draft policy reads: "State Teachers' Retirement System of Ohio would not divest of a restricted security in Iran or Sudan unless a comparable substitute of risk and return, including transactions costs, is available." Nicely done. They also asked the Attorney General to provide a written opinion on any conflict between the draft policy and the board's fiduciary duty.

See a good article on the topic at PlanSponsor.com (free subscription required)

Study Casts Suspicious Eye on Social Investing

A study conducted by Alicia H. Munnell, the Director of the Center for Retirement Research at Boston College, asserts that public pension fund divestment may not be a useful strategy to combat genocide and terrorism.

As of 2005, 80.0% of investors using social screens in their investment process were public pension funds. On the contrary, private pension plans only accounted for 9.1% of investor assets utilizing social screens. The report states that one potential reason for lower participation in social investing among private pension plans is that plans operate under the Employee Retirement Income Security Act (ERISA). ERISA requires a fiduciary to act “solely in the interest of the participants and beneficiaries…for the exclusive purpose” of providing benefits to them. From a fiduciary standpoint, trustees of public pension plans are frequently asked to forgo duties to beneficiaries to comply with ancillary objectives.

The article goes on to refute the claim that social investing has a financial impact on the companies facing divestiture. The author stresses that “boycotting tobacco stocks or international companies doing business in Sudan or Iran may result in a temporary fall in the stock price, but as long as some buyers remain they can swoop in, purchase the stock, and make money.” Investors, unencumbered with social investing restrictions, will demand more company shares as the stock price declines due to forced pension divestment. However, the financial impact of divestment will be brief as price-minded buyers step in to buy shares. In the end, the short-term impact goes unnoticed by the intended target companies.

The article concludes by stating the decision makers (politicians) are not the group that will be ultimately responsible for losses sustained as a result of divestment mandates, but future generations of taxpayers who will be forced to cover pension losses.

Shocking? Not Really,,,

The initial SEC terrorist "business partner" list had little basis in reality because the SEC had little stake in the definition. The "government" list should be published by an organization with substantial overseas experience. All of this leads me to believe that no one, political or otherwise, will be able to devise a universally acceptable list of standards. Couple this with the prevailing fact that divestiture laws vary widely and we believe that mandated divestiture will grow ever more confusing. We predict epic displays of grandstanding from politicos at the State and Federal levels. We may be back to square -1.

No one, NO ONE, wants to offer financial support to regimes that sponsor terrorists. But I wonder how can these efforts have any impact? And yes, we still do not know why Cuba is on this list.

WASHINGTON (via CBS MarketWatch) -- The Securities and Exchange Commission's new list of public companies that invest in five countries that support terrorism is flawed and should be revised or eliminated, a senior U.S. lawmaker said in a letter released Friday.

The regulator's list, announced on June 25, names companies that have business relating to North Korea, Syria, Iran, Sudan and Cuba. Those five countries have been named state sponsors of terrorism by the U.S. Secretary of State. See SEC Web site.

House Financial Services Committee Chairman Barney Frank, D-Mass., told SEC Chairman Christopher Cox in the letter that he is concerned about the compilation of the list.

Sticking it to the Taxpayer

In an interesting and in our opinion potentially clever move, the Pennsylvania House of Representatives has voted to hand state taxpayers the bill associated with their state's Sudan divestment effort. Under the legislation, taxpayers will be required to pay for losses sustained as a result of divestment. Pennsylvanian Taxpayers' first question should be: why? Currently, the bill does not determine how losses will be calculated. Will losses be netted against gains in new stocks that are purchased which are Sudan-free? Will investment managers submit a list of stocks they would have purchased without Sudan divestment restrictions and the resulting foregone gains? What if share prices of companies with links to Sudan fall? Perhaps a tax credit for Pennsylvania taxpayers is due? Not likely.

Relinquishing potential returns in Sudan-linked companies is one issue, but forcing the taxpayers to pay will likely be a hot topic. Unless, of course, this is a strategy to expose the complexity/futility of underlying divestment issues.

Cashing In

While it remains to be seen if targeted divestiture strategies will succeed in pressuring countries to behave, one thing is clear, the process of restricting finances to companies operating within countries guilty of sponsoring terrorism and genocide can be quite lucrative for social investing proponents. Claymore Securities has partnered with KLD to launch the Claymore/KLD Sudan Free Large Cap Core ETF (KSF). The new ETF has an expense ratio of 0.50%. Assets will likely flood in as more state governments pass divestment legislation. Read more by following the link to thestreet.com.

Vacation

We apologize for the lack of new postings but now that our summer vacations are over the blogging will resume.

Cuba Sponsors Terrorism:

The U.S. Secretary of State, in a new screening resource for investors, identifies Cuba as one of five countries presently sponsoring terrorism. The list is completed by Iran, North Korea, Sudan and Syria, which are witnessing the divestment of companies doing business within their borders. Recently the Securities Exchange Commission published a list of 22 international companies with ties to Cuba. Several are the usual suspects (energy companies) that appear on Sudan and Iran divestment lists. Lists of companies with business activities in Iran, North Korea, Sudan and Syria, were also made publicly available.

But Cuba?

Preemptive Divestment Attack

New York state Comptroller, Thomas DiNapoli, has begun a mission to rid the state's pension plans of companies with ties to Sudan. While most trustees have preferred to wait for state legislation requiring divestiture, Thomas DiNapoli has taken a different route. His plan involves working alongside the Sudan Divestment Task Force and state legislators to determine portfolio companies with "harmful" Sudanese ties. Before divesting from Sudan-linked companies, the companies will be asked to suspend business activity in Sudan or increase humanitarian aid and relief funding. Failing to do so will result in divestment. DiNapoli's unconventional strategy allows him to work alongside lawmakers giving him an uncommon level of control not available to most trustees facing divestment requirements.

Chain Reaction

Recent weeks have brought a flurry of divestiture activity. State legislators from across the nation have frantically constructed divestiture proposals. Last week the California Assembly voted unanimously to restrict investment in Iran-linked companies. The proposal requires California Senate approval before being enacted. This proposal comes shortly after the Board of California's largest pension fund, CalPERS, voted to oppose state legislation aimed at forced divestiture.

Trustees of the Arkansas Teachers' Fund have also recently taken a strong stance in the face of targeted divestiture. A push for Sudan divestiture was unsuccessful with trustees of the Fund. Although the Fund holds only one company with ties to Sudan, divestment will not be carried out.

It appears state legislators are locked in a foot race, unwilling to be the last to propose statewide divestiture plans.

Half Measure?

A few brief comments before the link:

1. Why are the votes on Iran and Sudan so frequently linked together? Is it purely convenience? They are two completely separate issues which should be addressed individually.

2. If one of the countries begins to act "properly", does the legislation have to be completely rewritten and re-passed?

3. What sense does it make to "half-divest"? What point does that make? It would seem this approach would dilute the message/punishment by more than half?

Ohio Pension Funds to Dump Shares in Iran and Sudan-linked Companies

June 9, 2007 (PLANSPONSOR.com) - Ohio’s five public pension funds will drop half of their investments in companies that have business links to Sudan and Iran, making it the next in swelling list of states adopting such measures, the Associated Press reported.

The bill passed on Thursday, the deadline for the pension systems to respond to one lawmaker's offer to kill legislation that would make such divestment mandatory if the systems agreed to give up half of their investments in such companies. The five systems will divest half of their investments by the end of the year, the AP reported.

Pressing From a Different Angle

A group named Social(k) is applying pressure on Fidelity to divest itself of investments linked to Sudan. They are encouraging individual investors, and those whose 401(k) plans invest in Fidelity funds, to contact the mutual fund giant and demand they divest from any company whose activities might support the Sudanese government. In addition to that, Social(k) will publish the names of companies whose 401(k) plans have substantial assets invested by Fidelity. Verizon, Ford Motor and Eastman Kodak count themselves among the twenty-nine "major" companies on the list.

It will be interesting to see how the various targets of the pressure will react to this novel approach. Fidelity has declared their opposition to blanket divestitures. Individual participants are unlikely to have an immediate impact, leaving Plan Sponsors as the logical target of this approach.

News Articles [PLANSPONSOR.com] - Social(k) Calling for Retirement Plan Pressure on Fidelity: "Social(k) Calling for Retirement Plan Pressure on Fidelity
May 17, 2007 (PLANSPONSOR.com) – If your retirement plan has investments at Fidelity, you may soon be asked to help prod the mutual fund giant to divest itself of investments linked to Sudan.

Up till now, the call to pull pension fund investments has largely been limited to public pension plans, and at the instigation of lawmakers. However, Springfield, Massachusetts-based Social(k) - a socially-responsive 401(k) platform provider - has teamed up with an organization calling itself Fidelity Out of Sudan to…well, to help prod the mutual fund giant to divest itself of those investments."

Anti Terror Divestment - Fortune Magazine

This seems like a good post to start with. It gives an idea of the scope of the divestiture movement and a hint into its complexity.

(Fortune Magazine) -- On its face, a drive to force public pension funds to halt investment in companies operating in countries believed to be sponsors of terrorism - primarily Iran - is in full swing. Presidential candidates John McCain and Mitt Romney support it. Legislation is being introduced in Congress and five states, including California. And on March 12, the American Israel Public Affairs Committee, the powerful pro-Israel lobby known as AIPAC, launched similar campaigns in ten states.

See Full Story