Cooperation on tackling pollution has been one of the main themes this week for the world's two largest economies. On the heels of a landmark agreement between US President Obama and China President Xi Jin Ping (习近平) on capping their carbon emissions, Chinese state-owned conglomerate CITIC Group and US private equity firm KKR have partnered to bid on water treatment company United Envirotech (UEL).

The Singapore-based company provides environmental solutions for wastewater treatment and has been known to service large Chinese state-owned firms such as China Petrochemical Corporation, China National Offshore Oil Corporation and China National Petroleum Corporation. If the bid is successful, CITIC Environment (International) and KKR will form a joint venture to buy a majority stake in company. The deal is estimated to be valued at US$1.5 billion.

With the majority of its businesses in China, UEL hopes to use capital from the deal to further its expansion, according to a company statement. Additionally, the investment will allow CITIC to grow its businesses in environmental protection. With a market capitalization of just over US$43 billion, CITIC will look to further cement its foothold in the environmental industry in China which promises potential growth. "Our investment in UEL provides us with a strong platform to develop in China's water and wastewater treatment sector," says Wang Jiong, chairman of CITIC Environmental Protection. "Environmental protection is a top priority for China, and CITIC foresees not only commercial opportunity but also social benefit from this investment."

The deal is conditional upon CITIC Environment getting approval from Chinese government authorities. If approved, the joint venture will make a formal offer and will seek to buy UEL by the second quarter of 2015. KKR now owns about 29.65% stake in UEL and plans to sell its shares to the future joint venture company.

Furthermore, KKR owns convertible bonds of UEL, which if converted into shares would amount to about 10.23%. UEL's CE and CIO, who together own a 16.33% stake in the Singapore-listed company, have also agreed to support the deal and join the joint venture.

"We look forward to continue working with UEL, and now CITIC, as a value added partner to support its long-term growth and provide much needed water and wastewater treatment services which will play a role in addressing China's water challenges," KKR head China David Liu remarks.

"We believe that the emergence of CITIC as its major shareholder is likely to have a positive impact on UEL. For one, the SOE status of CITIC could help UEL open more doors and expand its reach into other regions of China," explains Carey Wong research manager at OCBC Investment Research. "Secondly, CITIC could give UEL cheaper access to capital, riding on its credit rating in China. Last but not least, UEL could enjoy some very low hanging fruits in the form of ready waste-water treatment projects in related companies under the CITIC umbrella."

This deal is just another example of KKR's commitment to being active in China. In August, KKR injected US$400 million into Fujian Sunner Development, China's largest chicken producer. In June, KKR led a consortium of investors to acquire a US$270 million stake of a meat-processing unit of China's COFCO Group. The private equity firm made its biggest investment into China on September 2013 after its 10% private placement in Chinese appliance maker Qingdao Haier for US$552 million.

Environmental protection businesses are drawing more attention from Chinese investors with access to capital. They aim to follow the government's policy of combating pollution and improve the living standards in Chinese cities by obtaining better technology from abroad.

In March, China state-owned Beijing Capital Group acquired New Zealand's biggest waste management business from Australia's Transpacific Industries Group for US$798 million to combat chronic pollution in the northern regions in China.

The Chinese government plans to spend around US$16.3 billion over the next three years to deal with the pollution in Beijing, according to state media reports. It also seeks to treat 90% of all urban waste by the end of 2015, housing ministry data shows.