Tag Archives: SWFs

IPIC, the first SWF to file an ICSID claim

International Petroleum Investment Company (IPIC), a state controlled entity (SCE) from the United Arab Emirates (UAE) and its Dutch subsidiary Hanocal Holding B.V filed a request of arbitration at the ICSID against the Republic of Korea seeking compensation of 183.8 billion won on taxes paid in 2010.

The dispute started when IPIC and Hanocal sold their 70% stake in Hyundai Oilbank to Hyundai Heavy Industries for around 1.8 trillion won. The Korean National Tax Service withhold 10% as a sale tax on the basis that Hanocal cannot benefit of the double tax agreement between the Netherland and the Republic of Korea. The Korean tax authorities perceive Hanocal as a shell company and do not grant the tax treaty benefits. Since then Hanocal has unsuccessfully tried the case in front of the domestic courts.

Sheikh Zayed Bin Sultan Al-Nahyan, the founding father of the UAE, established IPIC in 1984 in Abu Dhabi with the participation of the Abu Dhabi Investment Authority (ADIA) and the Abu Dhabi National Oil Company. The goal of the entity is to use the wealth deriving from natural petroleum to build a modern, diversified economy for the benefit of future generations. Since 1986 the entity is wholly owned by the Government of Abu Dhabi and nowadays operates assets globally for an estimated value of $ 68.4 billions managing investments in companies that operate across the hydrocarbon value chain, including exploration and production, shipping and pipelines, downstream retail and marketing, petrochemicals, power and utilities as well as industrial services. Furthermore it has interests in renewable energy, infrastructure, environmental projects, real estate, aviation, automotive and financial services. As a matter of fact IPIC is one of the seven sovereign wealth funds of United Arab Emirates. However differently form ADIA, it is not a member of the International Forum of Sovereign Wealth Funds (IFSWF) and has not agreed to comply with the Santiago Principles. Nevertheless IPIC does very well in complying with transparency standards. It ranks high in the Linaburg-Maduell Transparency Index (a method of rating transparency in respect to sovereign wealth funds) scoring 9/10. It does very well also on economic performance. Moody’s, Fitch and Standard & Poor’s graded IPIC economic performance in 2013 very well according respectively A3, AA, AA.

By starting this investor state arbitration IPIC becomes the first sovereign wealth fund to rely on the ICSID tribunal to solve a dispute with the host country. In 2010 Temasek, after losing an antitrust case in domestic courts in Indonesia, threatened to take the case to international arbitration but there hasn’t been any news of a case being filed. Previously few SCEs have successfully tried their cases in front of the ICSID tribunals. In those occasions the respondent countries have raised issues on the jurisdiction related to the public ownership of the SCEs. The arbitrators have focused on the commercial purposes of the investment made by the SCE and have granted standing in front of the tribunal to the SCEs. It will be interesting to see if the respondent will raise the jurisdiction issue in this case and what will be the tribunal decision.


Assessing the relevance of multilateral trade law to sovereign investments: Sovereign Wealth Funds as “investors” under the general agreement on trade in services

Julien Chaisse‘s article Assessing the relevance of multilateral trade law to sovereign investments: Sovereign Wealth Funds as “investors” under the general agreement on trade in services was published in the International Review of Law on the Special Issue on Sovereign Wealth FundsThe Special Issue is open source and the articles are free to download.


The variety of investments made by powerful Sovereign Wealth Funds (SWFs) is often directed to the globally booming service sector which is regulated by the General Agreement on Trade in Services (GATS). This paper analyses the scope, substance and procedural rights which may benefit SWFs. The basic principles of World Trade Organization (WTO) law provide a legal framework for regulating SWF investment while the members’ specific commitments may provide significant liberalization. These positive elements for SWFs are tempered by the existence of exceptions and the relative shortcomings of state-to-state dispute settlement in the WTO and the lack of retroactive remedy. However, the paper shows that far from being perfect and complete, the GATS provides an international basis for SWFs to devise their investment strategies and an ideal forum in which to obtain further liberalization in current negotiations.

Link to the article 

A change of strategy for SWFs

SWFs presence in the global markets has become a routine. Every day we read that a significant number of SWFs buy or sell shares of many companies located in different countries. Even though this activism, sovereign funds have been keeping a low profile, acquiring minor participations. They haven’t interfered with the management choices and they have in this way clearly behaved as passive investors.

Recently however something has changed.  After the two unfortunate events that hit Malaysia Airlines, Khazanah Nasional, the country’s SWFs have decided to buyout the other shareholders, acquire full control and delist the company as part of an ongoing restructuring plan. In Bulgaria, the State General Reserve Fund, a SWF from Oman that owns 30% of the shares of the Corporate Commercial Bank has been discussing with the Bulgarian government a plan to stabilise the situation and rescue the bank. Last week GIC, one of the Singaporean sovereign funds acquired 50% of the assets of RAC becoming a strategic investor in the company together with the Carlyle Group.

These are three distinct events with significant differences with each other but they clearly show an emerging trend on the behaviour of SWFs, they indicate a shift from passive investors to more active investors. In a recent interview also Alasdair Warren, head of financial sponsors group for EMEA at Goldman Sachs commenting on the agreement between Carlyle Group and GIC said that it is likely that more acquisitions similar to this one are going to happen.

Copyright © 2014 Dini Sejko

SWFs market size

In the recent years investments made by SWFs has dramatically increased and so has their market size. It was $ 3,265 trillion in september 2007, and despite the global financial crisis or thanks to it, SWFs market size has more than doubled in June 2014 reaching $6,609 as it can be seen from the graph. The market size which has been floating during the years of the crises, has grown sharply by $1,12 trillion since June 2013.

It should be kept in mind that these amounts do not reflect the real size of the market of SWFs due to the lack of transparency that characterises many of them.

SWFs market sizeElaboration on SWFI data

Copyright © 2014 Dini Sejko

Enhancing Global Presence

The number of SCEs involved in foreign direct investments is increasing at a rapid pace as it is also increasing the amount of wealth that they manage. In its last estimation the Sovereign Wealth Fund Institute assessed it at $ 6,3648 trillion. Simultaneously with their number and size is also growing their global presence. Lately we have experienced a proliferation of their offices all around the world.

The most active in this sense is the Singaporean fund Temasek Holdings with a widespread presence in Asia with offices in Beijing, Shanghai, Hong Kong, Hanoi, Mumbai and Chennai. It has only one office in the European Union, in London and three offices in the Americas, in New York, Mexico City and Sao Paolo. Also the other Singaporean fund GIC is keeping pace with Temasek having offices in ten cities worldwide.

The Norwegian Government Pension Fund Global has a good presence in Asia with offices in Shanghai and Singapore and is very active in the Hong Kong stock exchange. It has offices also in London and New York. The Chinese Investment Corporation has offices in Hong Kong and Toronto.

The Gulf based funds are continuing to have only the resident headquarters with the exception of Mubadala Development Company that has set an office in Singapore.

Also the Canadian Pension Plan Investment Board has an extended global presence with offices in New York, Sao Paolo, London and Hong Kong.

For the moment the most attractive cities for the new offices of these funds have been Beijing and international financial centers such as Hong Kong, London, New York and Singapore.

This increased presence is a clear indication of their intention to massively expand their investments in a closer relationship with their host countries, ensuring a better protection of their investments through the available treaties. It will also provide them with an improved control on the management of the investments that they have already made and a better access to information for future investments.

Copyright © 2014 Dini Sejko