UPDATE 2-Norway fund expels China firm, says eyeing Siemens

* Fund ejects Chinese Dongfeng Motor on ethical grounds

* Puts Siemens under observation as a portfolio investment

* Fund had a 1.34 pct stake in Siemens at end-2008

* Fund has sold a 0.22 pct stake in Dongfeng

(Adds details, quotes, Siemens reaction; updates share price)

By Camilla Knudsen and John Acher

OSLO, March 13 (Reuters) - Norway's $300 billion-plus wealth fund has excluded Chinese automaker Dongfeng Motor Group 0489.HK from its portfolio because it supplies Burma's military rulers, and put Germany's Siemens SIEGn.DE under observation on ethical grounds, officials said on Friday.

The fund, which invests the Nordic nation’s oil and gas wealth in foreign stocks and bonds to save for future generations, is one of the world’s biggest investors, holding 0.77 percent of global equities at the end of 2008.

“The company (Dongfeng Motor Group) sells military trucks to Burma,” the finance ministry said in a statement.

“We cannot finance companies that support the military dictatorship in Burma through the sale of military materials,” Finance Minister Kristin Halvorsen said in a statement.

At the end of last year, the fund held a 1.34 percent stake in Siemens worth about 6.3 billion Norwegian crowns ($917.3 million) and a 0.22 percent stake in Dongfeng Motor Group worth about 30 million crowns, the ministry said.

The sale of the Dongfeng stake has been completed, it said.

Dongfeng shares ended down 1.2 percent at HK$3.3 on the Hong Kong exchange. Siemens shares erased gains to trade down 1.0 percent at 43.56 euros in Frankfurt by 1458 GMT.

The ministry said that its ethics council recommended excluding Siemens because it believed there had been corrupt practices within the engineering conglomerate for years.

Siemens agreed in December to pay more than $1.3 billion to settle U.S. corruption probes and end the biggest corporate corruption investigation in history. [ID:nN15508680]

Halvorsen referred to that settlement and said she agreed with the council’s recommendation, but the government chose not to expel Siemens because it wanted to use the fund’s influence as a shareholder to boost its anti-corruption work.

Siemens said it welcomed the Norwegian government’s decision to put aside the recommendation of the fund’s ethics council and remain a shareholder -- one of its biggest -- and that it had conducted an extensive anti-corruption programme.

“With last year’s settlement with authorities in the U.S. and Germany, Siemens took a key step in clarifying and resolving the corruption allegations of the past,” it said in a statement.


“If we pull out, we won’t have any opportunities to influence their anti-corruption work. But we will have a very low threshold for pulling out,” she said, adding Siemens would be kept under observation for four years.

Known as the “oil fund”, Norway’s Government Pension Fund -- Global is the world’s second biggest sovereign wealth fund after that of the United Arab Emirates. It grew to 2.275 billion Norwegian crowns ($331.2 million) by the end of 2008, when it had its poorest performance in its 10-year investment history.

The central bank-managed fund follows ethical guidelines issued by the finance ministry, and in the past it has excluded companies that produce nuclear arms or cluster munitions, damage the environment or abuse human rights or worker rights.

So far it has excluded 27 companies, not counting separately listed subsidiaries. It holds stocks in nearly 8,000 companies. (Additional reporting by Aasa Christine Stoltz; Editing by Andrew Macdonald and David Cowell) ($1=6.868 Norwegian crowns)