AES Corp to Sell Entire Stake in Turkish Joint Venture - Analyst Blog

Energy company The AES Corp. (AES) signed an agreement under which it will divest its entire stake in a Turkish joint venture (JV) − AES Entek Elektrik Üretimi A.S. (AES Entek) − to its associates in the JV. The disinvestment is part of this Virginia utility's efforts to streamline its portfolio. The deal is slated for completion in the first quarter next year.

Specifically, AES Corp. said it will sell its 49.6% interest in AES Entek to its partners Koc Holding AS and Aygaz AS, both based in Turkey. The properties for sale comprise 364 megawatts (MW) of operating natural gas and hydroelectric facilities, as well as stakes in a coal-fired development project.

AES Corp. is presently focused on simplifying its portfolio by asset divestments and exiting from markets and businesses where it does not have or cannot develop a convincing competitive advantage.

With the latest Turkish asset sale, AES Corp. will have exited nine countries in the past three years with proceeds of $2.4 billion from these deals. This has enabled the company to repay $1.3 billion of outstanding debt and repurchase $817 million of its shares. The latest asset sale deal will also help the company to slash overhead costs by $200 million.

AES Corp. is focused on streamlining its cost structure. The company took several measures to improve the cost effectiveness of its operations, including the improvement of processes, global standardization across its corporate support functions, reduction in the number and size of its corporate offices and shifting back-office operations to lower-cost places.

Apart from cost cutting initiatives, the company is making headway with several asset development projects across its operational hubs. During the second quarter of 2014, AES Corp. invested $414 million as growth capital expenditure. Currently, the company has new capacity of 4,500 MW and environmental upgrades of 2,400 MW under construction.

Systematic investments in organic ventures, strategic exits from non-core markets and a subsequent focus on high-return assets will likely act as catalysts for AES Corp.'s future growth.

AES Corp. currently holds a Zacks Rank #3 (Hold). Other better-ranked stocks in the utility sector include IdaCorp, Inc. (IDA), Korea Electric Power Corp. (KEP) and Consolidated Edison, Inc. (ED). While IdaCorp and Korea Electric Power sport a Zacks Rank #1 (Strong Buy), Consolidated Edison holds a Zacks Rank #2 (Buy).

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