New financial instruments to boost Mexican natural-gas infrastructure
The future of Mexican natural-gas infrastructure has been made more secure by the introduction of new financial instruments and supportive government regulations, market analysts have told FC Gas Intelligence.
Mexico’s energy sector will this year launch the first Fibra E, an investment trust structure based on US Master Limited Partnerships. Investment specialists are also expecting an increase in the issuance of CKDs (structured equity securities) directed toward the energy sector.
Fibra E trust funds will allow owners of mature assets generating stable cash flows to sell a stake to investors. Projects such as gas pipelines, power-transmission lines and power-generation plants are among those considered to have predictable cash flows, and are therefore the most likely to attract investors.
“Assets that are not highly exposed to the volatility of price changes are more likely to be placed in Fibra E,” said Rubén Cruz, lead partner at KPMG’s Energy and Natural Resources segment in Mexico. “Cash-flow projections are much more accurate in these types of assets.”
Securing the future
Two Fibra E and at least two CKD funds dedicated to financing energy projects are expected to be launched this year, with natural-gas pipelines and power plants among the potential assets they could target, according to Miguel Revilla, director at Quantit, a Mexican analysis firm specializing in CKD valuations.
Revilla estimates that Fibra E will raise $200 million to $500 million this year alone.
“We see an important future for assets related to natural gas, electricity and wind plants because of the government emphasis on advocating these sectors,” he said.
Mexico's energy infrastructure is growing. This map shows the state of play in September 2013 (Source: US Congressional Research Service, using data from IHS, Platts and Esri)
Infraestructura Energetica Nova (IEnova), the Mexico-based unit of US energy company Sempra Energy, and Fermaca Enterprises, a company building and operating pipelines in Mexico, are among those likely to benefit from Fibra E, according to Moody’s Investors Service.
The Mexican construction sector will be one of the main beneficiaries from the introduction of Fibra E, Moody’s analysts predicted in a January report.
State-owned oil producer Pemex and the Federal Electricity Commission (CFE) have publicly announced their intention to utilize Fibra E by listing shares in selected assets. Moody's vice president and senior credit officer Nymia Almeida said Pemex could raise as much as $4 billion through Fibra E.
“Fibra E will expand the company’s investor base and help reduce its debt burden and interest expenses,” she said in a report.
Given the negative impact of low prices on Mexico’s oil sector, Fibra E could also help finance infrastructure by replacing the reduction in capital expenditure by Pemex and CFE, said Fernando Ramones Fernández, analyst at Mexico's Center of Economics and Budget Research.
The country will need about $590 billion in investment to develop infrastructure through 2018, of which half will go the energy sector, according to the government’s most recent National Infrastructure Program in 2014. About two-thirds of total investment in the energy sector is expected to be funded by the government.
“But with the macroeconomic changes, it's possible that this mix could get modified, with 60% coming from federal funds and 40% from private resources,” said KPMG’s Cruz.
Next in line
Fiscal regulations for Fibra E are still pending approval, and Cruz doesn’t expect it to be launched before this year’s third quarter.
However, Mexican consultancy firm Ainda Consultores has already announced the issuance of new energy-focused CKDs, through which it is aiming to raise 6 billion Mexican pesos ($330 billion) in proceeds to invest in energy, electricity and other infrastructure projects. Ainda has the option to convert the CKDs into Fibra E, according to a prospectus filed to the Mexican Stock Exchange (BMV).
Energy has trailed other sectors for CKD-backed financing since 2009 (Source: Mexican Stock Exchange)
The company also closed a partnership with Goldman Sachs’ merchant-banking division in December 2015, to evaluate opportunities to invest in Mexico's oil and gas, electricity, transportation and water infrastructure sectors.
Since 2009, about 86.9 billion pesos have been raised via issuance of 65 CKDs in Mexico, according to BMV data. Last year saw a boost in CKD issuances, with 22 new trusts totaling 17.8 billion pesos. The most active sector in CKD listings has been real estate, accounting for nearly 30% of the total, according to BMV, while Mexico’s energy sectors have claimed an 11.7% share.
Exemption from corporate taxes should give Fibra E a key advantage over other financial instruments to fund the energy sector, according to Revilla.
Fibra E will open the sector to investment from the general public, something that isn’t allowed in the CKD structure, where only qualified investors can participate. At least 95% of its taxable income will have to be distributed to the investors each year.
Moody’s analysts predicted the new investment structures would also be credit positive for Mexico’s banks because they would provide more opportunities for lenders to invest in project finance, boosting profitability.
By Anna Flávia Rochas