Chinese company to buy a stake in AES

Arlington firm seeks money for new projects, ties to Asia

AES, the Arlington-based power generating company, said Friday it would raise $2.2 billion for new projects by selling 15 percent of its stock and more than a third of its wind-generation business to a unit of China's sovereign wealth fund.

AES said that by turning to the China Investment Corp. for funds it would be able to move ahead with projects in its development pipeline without weakening its balance sheet, and build a relationship that could bolster its prospects in a key growth market.

Paul Hanrahan, AES chief executive, said in an interview that the deal "takes the company from one that is in stable financial condition but can't do much to grow" to one that can "start funding the projects in our pipeline," including 1,200 megawatts of U.S. wind projects. He added that it would also give the company "dry powder" for acquisitions.

For CIC, the investment represents further diversification and a continuing strategy of taking minority stakes in companies. Established in 2007 with $200 billion to invest, CIC bought chunks of Blackstone and Morgan Stanley just months before the financial crisis erased much of their value. More recently, it has acquired stakes in a British real estate developer, a Canadian company involved in coal mining in Mongolia, Russian and Kazakh oil companies, and an Indonesian energy firm. It has also made further investments in hedge funds.

AES said CIC would buy a 15 percent stake in the company by purchasing 125.5 million shares of AES stock at $12.60 a share for a total of $1.58 billion, representing a discount on the current price. (AES closed Friday at $14.03 a share, up 17 cents, or 1.2 percent.) CIC will nominate one member to the 10-person AES board of directors.

In addition, CIC signed a letter of intent to pay an additional $571 million for a 35 percent interest in AES's wind-generation business. It will make additional investments proportional to its stake as the business finds new projects.

In an earnings conference call, several analysts questioned the deal, noting that just last year AES asserted that its stock was undervalued and bought back shares at $14 each. They said AES would be under pressure to show that its projects would be profitable enough to justify diluting the stock of current shareholders.

"This sets a high bar for us," Hanrahan said, adding that "we have to demonstrate that we'll be able to take this money and turn it into value for the shareholders."

Hanrahan said AES, which operates in 29 countries, has 1,200 megawatts of new wind projects that will require about $600 million in equity over the next 18 months. He said AES will need another $600 million for other power projects during the same time period.

The link with CIC might help AES in a variety of ways, Hanrahan said, including new opportunities in Asia. CIC receives about 100 business proposals a day, according to a person in Beijing who has been involved in negotiating transactions there. Hanrahan told analysts that the CIC investment might also help secure Chinese export financing for Chinese-made equipment in a Vietnam project.

The deal does not set any requirements on where AES would purchase wind turbines, Hanrahan said, unlike a recently announced $1.5 billion Chinese investment in a Texas project that will use turbines made in China. In the short term, he expects the Chinese investment will help AES push ahead with projects that rely on U.S.-made wind turbines.

"We have a lot of projects in development," Hanrahan said, "and the market said, 'Where are you going to get the money from?' "

AES will seek approval for the deal from the Committee on Foreign Investment in the United States, an inter-agency group that reviews national security dimensions of foreign investments, Hanrahan said. But AES said it does not expect a problem because CIC would not have control over AES and because the power plant technology in question does not pose any issue.