February 27, 2012 6:56 pm

State Grid in talks to take stake in AES

State Grid, China’s biggest utility company, has been in talks over a possible investment in US power company AES, a deal that would mark the Chinese group’s first foray into the US energy sector, according to people familiar with the talks.

Chinese utility companies, including State Grid, have been on an overseas buying spree as they take advantage of asset sales in the west during a downturn in the global economy. Two Chinese utilities, State Grid and Three Gorges, recently made large investments in Portuguese power assets sold by the cash-strapped Portuguese government, highlighting the growing firepower of China’s state-owned enterprises. State Grid bought a 25 per cent stake in Portugal’s national grid operator.

State Grid is considering taking stakes in AES power generating assets, including wind assets in the US, according to one of the people.

AES owns and operates wind, solar, and conventional generating assets around the world.

But while talks were continuing, they may not result in any transaction, the people said.

The Fortune 200 power company is focused on expanding in regions such as the US, Chile and Brazil, where it considers itself to have a competitive advantage, and may exit other markets.

On Monday, AES announced it had sold a New Jersey-based combined cycle gas turbine plant called Red Oak and a plant in Pennsylvania, called Ironwood, for a combined amount of $463m.

It also said it had completed the sale of a plant in Spain to GDF Suez. The US power company said it would use the funds to either pay down debt, invest in new businesses or buy back shares.

AES, a global energy company with headquarters in Virginia, has worked in China for more than a decade and 15 per cent of the company is owned by China’s sovereign wealth fund, China Investment Corporation.

The talks with State Grid come after initial discussions with CIC about investing in the wind power business faltered.

Three years ago the companies said CIC had also signed a letter of intent to buy a 35 per cent stake in AES’s wind power business for $2.2bn to help fund its expansion.

Liu Zhenya, State Grid president, recently accompanied Chinese vice-president Xi Jinping on his official visit to the US.

Chinese energy companies have previously faced strong political opposition in the US.

Investments by Chinese state-owned companies have often sparked political controversy, and this year debates over China’s role in the US economy have featured prominently in the US presidential election campaign.

State Grid did not respond to a request for comment, and AES declined to comment.

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