CIC Buys 15% in AES

Who? What? CIC stands for the Chinese Investment Corporation. CIC is a sovereign wealth fund for the Chinese Government that is buying up natural resources all over the world. Yesterday it was announced that CIC is buying a 15% interest in AES, an American based power generation company:

A CIC unit will buy 125.5 million in new shares for $12.60 each, or $1.58 billion, Arlington, Virginia-based AES said today in a statement. CIC will own about 15 percent of the power company. AES also signed a letter of intent to sell a 35 percent interest in its wind-power operations to CIC for $571 million.

The emphasis on that last sentence was mine. Of course AES executives are spinning this as a great thing for the company:

“This just gives us a war chest of dry powder to execute on mergers and acquisitions,” Hanrahan said in a telephone interview.

It doesn't matter to them that CIC is still part of an authoritarian government that suppresses freedoms. It doesn't matter to them that Chinese may be working on a strategy beyond diversifying away from its huge dollar holdings. Why should it AES is a "global" company and its executives' goal is to maximize shareholder value? And who cares if a 15% shareholder is now directly connected to the Chinese government?

According to AES most recent 10-K:

We are a global power company. We own a portfolio of electricity generation and distribution businesses on five continents in 29 countries, with generation capacity totaling approximately 43,000 Megawatts ("MW") and distribution networks serving over 11 million people as of December 31, 2008. In addition, we have more than 3,000 MW under construction in ten countries. Our global workforce of 25,000 people provides electricity to people in diverse markets ranging from urban centers in the United States to remote villages in India. We were incorporated in Delaware in 1981 and for almost three decades we have been committed to providing safe and reliable energy.

We own and operate two primary types of businesses. The first is our Generation business, where we own and/or operate power plants to generate and sell power to wholesale customers such as utilities and other intermediaries. The second is our Utilities business, where we own and/or operate utilities to distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors in a defined service area.

.......

In early 2009, the Company began to implement certain organizational changes in an effort to streamline the organization. The new structure will continue to be organized along our two lines of business, but within three regions instead of four: (1) North America, (2) Latin America & Africa and (3) Europe, Middle East & Asia ("EMEA"). In addition, we will no longer have a separate alternative energy group. Instead, AES Wind Generation will be managed as part of our North America region while climate solutions projects will be managed in the region in which they are located.

What is interesting about this deal is the side agreement for 35% interest in wind generation business. AES claims to be a one of the largest producers of wind power in the U.S and its making investments into other alternative sources of power. This from AES 10-K:

In recent years, as demand for renewable sources of energy has grown, we have placed increasing emphasis on developing projects in wind, solar and the creation of greenhouse gas emission offset credits ("GHG credits"). We have also developed projects and/or made investments in climate solutions and energy storage. In 2005, we started a wind generation business ("AES Wind Generation"), which currently has 16 plants in operation in three countries totaling over 1,200 MW and is one of the largest producers of wind power in the U.S. In addition, over 400 MW are under construction in four countries outside the U.S. In March 2008, we formed AES Solar Energy LLC ("AES Solar"), a joint venture with Riverstone Holdings, LLC ("Riverstone"), a private equity firm, which has since commenced commercial operations of 8 plants totaling 24 MW of solar projects in Spain and has development potential in three other countries. In the area of climate solutions, we are developing and implementing projects to produce GHG credits and are currently developing projects in Asia, Europe and Latin America. In the U.S., we formed Greenhouse Gas Services, LLC as a joint venture with GE Energy Financial Services to create high quality verifiable emissions offsets for the voluntary U.S. market. We also formed a line of business to develop and implement utility scale energy storage systems (such as batteries), which store and release power when needed. While none of these initiatives are currently material to our operations, we believe that in the future, they may become a material contributor to our revenue and gross margin.

Next time, I hear someone equate capitalism to freedom and democracy I think I am going to deck their ass and mention one word: CHINA. China is whipping the capitalist at their game while at the same time positioning itself to be a dominate force - THE world power - based on its control of natural resources. But companies like AES don't care because they are maximizing shareholder value.

Paranoid? Maybe, but when I am hiding in the Robledo Mountains planning to take on the Chinese Red Army as they lie claim to U.S., I will be thinking of those executives who are being told what to do by the Chinese government, all in the interest of maximizing shareholder value. Don't think it can't happen? Why risk it?

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why invade?

When you can just buy it. There are a host of strategic corporations already bought by China. i.e. national security strategic. This is one in a long line of them.

On China, I agree, they are beating the Capitalists into the ground and also out to be the world's dominant economy.

What a great trade agreement the China PNTR is too. It's taken them only 9 years to do this with that trade agreement. 9 years!

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