French energy group GDF Suez SA is close to signing a deal with China
Investment Corp. allowing China's sovereign wealth fund to take a minority
stake in the energy giant's exploration and production business, as part of a
wider alliance to boost the company's exposure to the energy-hungry Asian market.
Under the proposed deal, which GDF Suez's board has yet to approve, CIC would
take a 30% stake in the group's exploration and production business for up to
EUR3 billion, according to a person familiar with the matter. If all goes to
plan, GDF-Suez is scheduled to announce the deal when it presents its earnings
on Wednesday.
The deal is part of a wider venture that could see CIC co-invest with GDF Suez
in all of its businesses across the Asia Pacific region, with the exception of
China
itself, the person added. CIC did not respond to calls for comment.
The proposed deal chimes with GDF Suez Chief Executive Gerard Mestrallet's plan
to divest some EUR10 billion in assets by 2013 as the French energy company
looks to reduce debt, focus on organic growth and boost its presence in the
Asia Pacific region.
GDF Suez's exploration and production business, focused largely on natural gas,
accounted for EUR1.59 billion of revenues in 2010. The capital intensive nature
of locating and extracting oil and gas means that allying with a sovereign
wealth fund makes sense, especially if the group is looking to lighten its debt
load, analysts say. Currently GDF has exploration and production activities in
Australia
and
Indonesia
;
however the vast majority of its business is still located in
Europe
.
CIC has been actively investing in energy and resources since 2009, investments
that could help the giant fund hedge against inflation and meet the needs of
the world's fastest-growing economy.
Many of the fund's large deals involve these sectors, including a $1.6 billion
investment in AES Corp., a Virginia-based power company, in which it bought a
15% stake; a $416 million investment in Penn West Energy Trust, based in
Calgary
in
Canada
and a
$200 million investment in Chesapeake Energy, of
Oklahoma
City
.
The Chinese $410 billion sovereign wealth fund, earned an 11.7% return on its
overseas portfolio last year as it deployed almost all of its capital and
accelerated investments into higher-risk assets.
Mr. Mestrallet has talked of the world entering a "golden age" of
natural gas, spurred in part by the discovery of huge fields of shale gas and
fears over the viability of nuclear energy following a recent disaster in
Japan
. GDF
Suez identified
China
as a
huge growth market for imports of natural gas but has been reluctant to invest
in light of concerns over the lack of a stable regulatory and investment regime
for electricity production in the country.
Separately, GDF Suez is looking to sell off assets in the next three years to
soften the impact on its balance sheet of its latest deal with the U.K's
International Power PLC. Under the $2.25 billion transaction finalized in
February, GDF Suez merged its international assets with those of the
U.K.
company. That came on the heels of the 2008 state-orchestrated union between
two longtime French utility giants,
Suez
and
Gaz de France.
If the deal with CIC is completed, GDF Suez's exploration and production
business will likely be spun off into its own unit, analysts expect. This could
potentially hamper GDF Suez's share price as analysts start to apply a
conglomerate discount to it.
"We expect such a deal to further lead the market to consider GDF Suez as
a holding company with significant minorities in many businesses," analysts
at CA Chevreux wrote in a research note.
After the GDF-Suez planned deal was first reported in French newspaper Les
Echos, shares in GDF rallied in
Paris
trading Monday, rising 1.6% at EUR20.73. France's blue chip CAC-40 index was down 1.7%.