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AES to Divest Minority Stake in IPALCO Enterprises to CDPQ

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The AES Corporation (AES - Free Report) declared that it has entered into an agreement to sell its 15% minority stake in AES US Investments Inc., a wholly-owned subsidiary of AES, to La Caisse de dépôt et placement du Québec (“CDPQ”) for $244 million.

In addition, CDPQ will make investments of about $349 million in IPALCO Enterprises, Inc. (“IPALCO”) through 2016 in exchange of a 17.65% equity stake. IPALCO is a wholly-owned subsidiary of AES US Investments.

Once the deal is complete, AES will have an 85% stake in AES US Investments with the latter holding an 82.35% stake in IPALCO, while CDPQ will have a 30% interest in IPALCO inclusive of direct and indirect interests of the company in IPALCO.

Indianapolis Power & Light Company (“IPL”) is a subsidiary of IPALCO. IPL is in the middle of the completion of a $1.4 billion capital expenditure program, which will be funded with about 45% equity and 55% debt. AES has already completed the funding of $156 million as of Sep 30, 2014 as per its equity commitment. Of the remaining equity amount, $349 million will be funded by CDPQ, $62 million is expected to be funded by AES and CDPQ proportionally and the rest is expected to be funded by IPL’s cash from operations.

Once IPL’s capital expenditure program is over, its coal capacity will drop to 44% in 2017 from the present 74%, and ensure that it complies with the regulatory requirements. The transaction is expected to close by the first half of 2015.

Further, AES expects the deal to be earnings accretive by reducing equity commitments to finance growth and environmental projects at IPL.

In a separate disclosure, AES announced that its board of directors has approved to increase its quarterly dividend by 100%, bringing the annualized payout to 40 cents per share from 20 cents per share. (Read More: AES Corporation Hikes Annual Dividend Rate by 100%)

These announcements however failed to upgrade the company’s ratings. Moody’s declared that the announcements made by AES will not affect its ratings. Also, the company’s shares closed the Tuesday trading session at $12.79, down 3.8% from Dec 12, 2014.

AES currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Black Hills Corporation (BKH - Free Report) , The Empire District Electric Company and PG&E Corporation (PCG - Free Report) each carrying a Zacks Rank #1 (Strong Buy).

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