CIC invests in GCL-Poly Energy

China's $200 billion sovereign wealth fund, China Investment Corporation (CIC), will invest HK$5.5 billion ($710 million) for a 20% equity stake in GCL-Poly Energy Holdings.

CIC will buy 3.1 billion new shares of GCL-Poly at a price of HK$1.79 per share.

GCL-Poly will use the money for general working capital, to repay borrowings and to explore new business opportunities. GCL-Poly and CIC will also set up a joint venture to invest in and develop photovoltaic projects and other solar energy projects. The partners will initially make a nominal investment but ultimately intend to capitalise the JV with up to $500 million. GCL-Poly may use part of the money it raises from CIC to invest in the JV.

The deal is subject to approval by GCL-Poly's shareholders. Once approved, CIC will have the right to nominate two directors to the GCL-Poly board.

GCL-Poly is a polysilicon supplier and a power producer that generates electricity from co-generation plants. When GCL-Poly went public in 2007 it had an installed capacity of 388 megawatts, which was set to increase to 558MW.

GCL-Poly's shares closed up 8.2% at HK$2.50 yesterday, after reaching an  intraday high of HK$2.77 shortly after opening on the news of the CIC investment.

This is CIC's second investment in the power sector this month. On November 6 it invested $2.2 billion to acquire an equity interest in Virginia-based power generation and distribution firm AES Corporation and its subsidiary AES Wind.

CIC paid $1.58 billion for a 15% equity interest in AES, buying 125.5 million shares at a price of $12.60 a share. CIC also simultaneously signed a letter of intent to buy a 35% interest in AES's wind generation business for $571 million. As with the GCL-Poly investment, CIC obtained board representation with the AES investment, securing one board seat. The investment was CIC's first in a listed US company that is not in the financial services sector.

AES owns and operates a portfolio of power generation and distribution businesses in 29 countries and derives more than two-thirds of its revenues from outside the United States.

CIC has been on a buying spree this summer and, for the most part, its targets have been natural resources firms. In September it invested in Singapore-listed commodities trader Noble Group, spending $850 million for a 14.9% stake. CIC was advised on the Noble investment by J.P. Morgan.

CIC has worked with a number of advisers on its recent deals, with the result that almost every bulge-bracket investment bank has a buy-side mandate from CIC to its credit.

On the GCL-Poly investment it was advised by Goldman Sachs, with Reed Smith acting as legal counsel. Credit Suisse provided financial advice to GCL-Poly with Freshfields contributing legal advice.

Morgan Stanley advised CIC on the investment in AES, while AES Corporation was advised by Deutsche Bank and AES Wind by Citi.