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The AES Corporation—Did Anybody Notice This Little Investment?

Because AES is a power generation company with worldwide projects and operations, it does not really play in the local sandbox.  Nevertheless, with revenues of over $14 billion and a market cap over $9 billion, it is easily one the largest companies headquartered in the region.  And in early November, it did an eye-popping private stock sale to an investment arm of China for $1.6 billion which represents 15% of AES.  That is a PIPE (Private Investment in Public Equity) to end all PIPEs for this region.  In addition, AES and China Investment Corporation (CIC) are considering another $571 million investment in AES’s wind energy business.

This investment is a natural consequence of the U.S. economy transferring trillions of dollars to China over the decades in exchange for goods.  Obviously, much of these accumulated dollars were spent on modernizing the Chinese economy and improving the quality of life in China.  But in a hard to fathom concept, China accumulated more dollars than it could spend.  A large portion of this hoard has been reinvested in dollar denominated securities, which has helped keep our national economy solvent during good times and bad.  There is no judgment to be made here.  That is just the state of trade in the last part of the 20^th Century and the first part of the 21^st.  We each have gotten something important from this relationship.  As the Chinese market and economy mature, what we are seeing now is the willingness of China to take more risks and invest in tangible assets and corporations—not just financial instruments.  Sometimes this new investing has the goal of gaining technological expertise (as in the acquisition of a teetering automobile nameplate) and sometimes it has more daring risk/reward objectives as appears to be the case with the AES investment.  Of course, in the energy sector, once upon a time, U.S. companies were totally dominant in the creation of nuclear technology and electrical equipment (GE turbines, for instance).  But now we see the Chinese, as the Japanese and the Koreans did before them, advance their engineering into complex, big ticket items such as solar and wind production as well as aircraft manufacture.  Although the AES investment may appear to be just that—an investment–don’t be surprised to see that sales of capital goods into AES follow.  He who pays the piper eventually calls the tune.