China Investment Corporation in €2.3bn deal with GDF Suez

The Chinese sovereign wealth fund is in ‘advanced exclusive talks’ to acquire a €2.3bn minority stake in a unit of the French utility. The two firms have also agreed to explore co-investment opportunities in gas, power, and water and waste across Asia Pacific.

China’s $300 billion-plus sovereign wealth fund, China Investment Corporation (CIC), has signed a memorandum of understanding with French utility GDF Suez to co-invest across Asia Pacific and to acquire a minority stake in one of its units.

The first milestone of the agreement will be the completion of a €2.3 billion deal for the acquisition of a 30 percent stake in GDF Suez’s Exploration & Production (E&P) division, as well as a 10 percent stake in a liquefaction plant in Trinidad and Tobago for €600 million, both parties announced today. The deal could be finalised by the end of this year, the firms added, and should mark the start of a broader cooperation between the two partners.

“CIC appreciates the opportunity to access a wealth of attractive joint investment opportunities alongside GDF Suez across its strong competencies, for example in gas, power, environmental and other energy efficiency services,” commented Lou Jiwei, chairman and chief executive of CIC. “Our investment of 30 percent in GDF Suez E&P would be our first sizeable transaction in Europe to date,” he added. 

The framework agreement involves pursuing “joint investment opportunities in existing and new energy-related projects in Asia Pacific; financing cooperation in new projects in Asia Pacific; and commercial sponsorship and support to GDF Suez in the Asia Pacific region, including China, by CIC’s affiliates,” GDF Suez stated. The agreement will be administered by both groups’ chief executives.

GDF Suez E&P accounted for 2.6 percent of GDF Suez’s aggregate revenues in 2010, or €2.2 billion, and 10 percent of the utility’s earnings before interest, tax, depreciation and amortisation (EBITDA), or €1.4 billion. The CIC acquisition values GDF Suez E&P at an enterprise value of €8.1 billion, GDF Suez said.

The French utility has been selling assets as part of a €10 billion “portfolio optimisation programme”, first announced during its 2010 annual results presentation. Recent divestments include the sale of GDF Suez’s Italian gas network to a consortium of infrastructure investors comprising F2i and AXA Private Equity for €772 million.

CIC’s investment can be seen as yet another example of the growing interest Asian, and in particular Chinese, companies are taking in European utilities. Earlier this month, a consortium led by Hong Kong’s Cheung Kong Infrastructure, the infrastructure vehicle of business tycoon Li Ka-Shing, entered into an agreement to buy UK water utility Northumbrian water for £2.4 billion (€2.7 billion; $3.9 billion).