The Chinese government's investment arm is in talks on taking a minority stake in Virginia-based power-plant developer AES Corp., according to people familiar with the matter.
The possible purchase is part of a wide-ranging discussion aimed at building an alliance between AES and China Investment Corp., the country's sovereign wealth fund, with some $300 billion in assets.
The discussions could result in CIC taking a significant stake in AES, which has a market capitalization of about $9.5 billion.
A joint venture between the two parties also is under discussion, in which CIC would contribute capital to AES's plans to develop power plants around the globe, said the people familiar with the matter. These people described the talks as being at a sensitive stage, and said they might not produce a deal.
An AES spokeswoman declined to comment. A spokeswoman for CIC also declined to comment.
CIC's interest in AES reflects China's growing appetite for diversifying its $2 trillion in foreign-currency reserves. Lately CIC and other Chinese state-controlled companies have been purchasing assets around the world, including oil-and-gas producers, stakes in U.S. financial companies Blackstone Group LP and Morgan Stanley and a large position in Canadian miner Teck Resources Ltd.
A deal with AES would demonstrate China's increasing comfort with politically sensitive investments. Historically, the U.S. has been leery of any Chinese investments in American infrastructure companies, fearing potential espionage. While CIC and AES are discussing power projects outside the U.S., any agreement would have to withstand U.S. political scrutiny.
In 2005, China created an uproar in the U.S. when a state-owned oil company made a bid for California-based Unocal Corp. But fears in the U.S. and elsewhere about China taking control of major companies have subsided in recent years, largely because tight credit has made both companies and governments eager to gain access to Chinese capital.
AES, a global power-plant developer and utilities operator, is active in 29 countries. About two-thirds of its investments are in the power-generation business and one third in utilities. It owns 14 utilities that serve 11 million customers, including customers in Indianapolis. It also has power facilities in New York, Texas, and California.
AES's earnings growth is largely driven by its construction program, as projects are completed and begin producing cash. Earlier in the decade it was considered a hot stock and traded for $50 to $70 a share. But the company suffered as Enron Corp.'s collapse prompted investors to pull back from power-plant developers and credit got tight.
For the most part, AES's stock has traded at less than $20 since 2002, though it slipped to less than $5 earlier this year amid the recession. In 4 p.m. composite trading Friday on the New York Stock Exchange, AES shares were up 1 cent at $14.15.
Although it has a significant power-plant development business, AES has had little presence in one of the fastest-growing markets -- China. It has about 200 megawatts of wind-generating capacity under construction there now, half-owned by a Chinese partner, Guohua Energy.
China is especially alluring because many other nations, including the U.S., are experiencing declining electricity demand, while demand in China is still growing. About 6% of AES's megawatts under development are in China, compared with 37% in Chile, 25% in Bulgaria and 12% in Jordan, its top three countries for expansion.
