China Fund Partners with Energy Giant

China Investment Corp signs MoU with GDF Suez.

August 11, 2011

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10530_light_bulb_stock_1It. Is. On. GDF Suez and the China Investment Corporation are joining forces to invest in energy assets and collaborate in energy businesses throughout Asia Pacific.

People, this is a big deal. On the one hand you’ve got the world’s biggest utility by sales. And on the other hand, you’ve got a $410 billion sovereign fund with a penchant for commodity and energy investments. And, as of today, the are now business partners, having signed an MoU that brings them together, not for a one-off transaction but for many, many future transactions to come. This partnership could end up being worth tens of billions of dollars in joint-investments. But before we get too excited, let’s get some of the facts.

Here’s a blurb straight off the China Investment Corporation’s website:

“China Investment Corporation (“CIC”) and GDF SUEZ have signed a Memorandum of Understanding for cooperation across multiple businesses (gas, power, water and waste, and energy efficiency services) and regions (in particular in Asia Pacific). As the first milestone of this cooperation, CIC is in advanced exclusive talks with GDF SUEZ regarding a USD 3.15 billion minority investment in the exploration & production division of GDF SUEZ.”

And, over on GDF’s website, we can glean a few more details:

“The MoU will be deployed across GDF SUEZ Group’s businesses (gas, power, water and waste, and energy efficiency services) and sets up the framework for cooperation in three areas: (i) joint investment opportunities in existing and new energy-related projects in Asia Pacific; (ii) financing cooperation in new projects in Asia Pacific; and (iii) commercial sponsorship and support to GDF SUEZ in Asia Pacific region, including China, by CIC’s affiliates. The MoU will be administered through a Steering Committee chaired by the two groups’ respective CEOs.

Gérard Mestrallet, Chairman and Chief Executive Officer of GDF SUEZ, declared: “I am very pleased to enter into this MoU with CIC, a major investment force worldwide, which can help GDF SUEZ access substantial incremental financing resources and strong networks in China and throughout Asia…

Lou Jiwei, Chairman and Chief Executive Officer of China Investment Corporation, said: “We are pleased to cooperate with GDF SUEZ, a leading utility company worldwide. CIC appreciates the opportunity to access a wealth of attractive joint investment opportunities alongside GDF SUEZ across its strong competencies…”

This looks as though it could be an ‘epic win’ for both organizations:

  • The CIC will get access to GDF’s talent and deal flow. It will also get some political cover thanks to GDF’s commercial focus. And perhaps (though the CIC would deny it) the MoU may help manage some of China’s strategic energy needs, which is an added bonus.
  • The GDF will get preferential treatment and access to China’s growing energy industry thanks to the CIC’s network and relationships. In addition, it will be able to tap the deep pockets of the Chinese SWF and its affiliates when needed.

Fascinating. It’s the kind of investment I’d like to write about in detail and depth. Alas, the clock only has 24 hours on it…

But (!) for the motivated among you, I’ve got two academic papers that will provide some interesting context on the CIC’s strategic investments. First, check out this paper by Daniel Haberly; it goes in depth on the CIC’s strategic focus using a network analysis. Second, grab a very large and very caffeinated cup of coffee…get yourself into an uncomfortable position…and then try to read this nerdy paper by yours truly. It’s all about the rise of the CIC.

This post originally appeared on the Oxford SWF Project

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