Chinese Investment Firm Taking 7 Percent Stake in Satellite Fleet Operator Eutelsat

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PARIS — China Investment Corp. (CIC) is buying a 7 percent stake in satellite fleet operator Eutelsat of Paris from Spain’s Abertis Telecom for 385.2 million euros ($500 million), a transaction that values Eutelsat at 5.5 billion euros, Abertis announced June 22.

Barcelona-based Abertis, which used to be Eutelsat’s biggest shareholder, has been gradually reducing its stake to refocus on investments in which it can gain a controlling interest.

In satellite telecommunications, Abertis has increased its ownership of satellite fleet operator Hispasat of Spain, in which it now has a 46.6 percent equity stake. Abertis has long harbored ambitions to purchase a majority share of Hispasat. But up to now the Spanish government, which through various state-owned entities owns around 26 percent of Hispasat, has declined to give its approval.

Abertis sold a 16 percent share of Eutelsat to several investors Jan. 13 in a transaction that valued Eutelsat at 6.1 billion euros. Abertis agreed to a six-month lockup of its remaining 15.35 percent holding, meaning it could not sell those shares until mid-July.

In its June 22 announcement, Abertis said Beijing-based CIC has agreed not to take ownership of the Eutelsat shares until the lockup period ends.

Eutelsat has been a profitable investment for Abertis since its initial acquisition in 2006. Its sale to CIC brings it a net capital gain of 237 million euros.

Abertis said it would “remain a Eutelsat shareholder, with a stake of 8.35 percent,” even though a minority ownership would appear to be at odds with Abertis’ stated goal of aiming for control of the assets it owns.

“Abertis keeps on reshuffling its holdings in the satellite infrastructure business, strengthening its commitment to growth, specifically targeting projects in which it can take an industry leadership role and a greater financial consolidation, as in the case of Hispasat,” Abertis said in the statement.

CIC, a sovereign wealth fund, was formed in 2007 with a bond issue from China’s Ministry of Finance. The company used this to purchase $200 billion in China’s foreign exchange reserves.

In its 2010 annual report, issued in July 2011, CIC describes itself as “a financial investor. As such, it does not seek to control any sector or company.”

CIC’s investments in 2010 included minority stakes in power utility AES Corp. of Arlington, Va., Chesapeake Energy of Oklahoma City and energy producer Penn West of Canada.

Given the U.S. government’s position on all things involving space technology and China, the CIC acquisition may nonetheless raise issues.

In 2007, the U.S. State Department blocked the privatization of satellite fleet operator AsiaSat of Hong Kong because it would have resulted in China’s Citic Group increasing its ownership in AsiaSat to 50 percent from 34 percent. GE Capital of the United States would have had the other 50 percent stake in what the two companies planned to be a joint venture.

The State Department never explained its motives, but because AsiaSat’s fleet included U.S.-built satellites subject to U.S. technology transfer regulations, the company could not conclude the privatization. U.S. authorities had voiced no objections to Citic’s stake at 34 percent, however.

Eutelsat’s exposure to U.S. government policy is a consequence not so much of its satellite fleet — most Eutelsat satellites are European-built, even if most have U.S.-made components — as from its position as a major provider of satellite bandwidth to the U.S. Department of Defense.

Eutelsat spokeswoman Vanessa O’Connor said June 22 that Eutelsat was not informed of the Abertis sale until just hours before it was announced. She said CIC will not have a seat on Eutelsat’s board and that the company sees no changes to its strategy as a result of the Chinese ownership. “They are a passive investor at 7 percent,” O’Connor said.

 

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