Achieving majority state control of Mexico’s energy sector had long been a goal of former president Andrés Manuel López Obrador – and one he reached in his final year in office with the conclusion last February of a $6.27 billion deal for the government, via a special purpose acquisition trust managed by Mexico Infrastructure Partners (MIP), to buy 13 power generating assets totaling 8.54GW of installed capacity, from Spain’s Iberdrola.
The deal, which wins Domestic M&A Deal of the Year, is the largest yet acquisition by the Mexican sovereign, the largest ever transaction in Mexico’s energy sector and the largest in Latin America’s power generating sector so far this decade.
The policy goals of the prior administration remain intact with the new government under Claudia Sheinbaum, who took office in October. As Edgar Amador, Mexico’s undersecretary for finance and public credit puts it: “The thesis behind this deal was to increase the assets operated by the public security to ensure energy security and independence. This is what Mexicans voted for and the government delivered.” The acquisition was part of the strategy of former President López Obrador for the state to control at least 50% of power generated in Mexico; the Iberdrola deal puts it at 54%.
Amador says two aspects of the deal immediately stand out: the technical conditions and the innovation and effectiveness of Mexico’s state to close a deal.
On the technical, he says the cost of a megawatt hour is now 28% below the pre-sale average and the efficiency rate at the 13 plants if 90.3%.
“All the efficiency and quality indicators have improved so, in a nutshell, I think this has worked better than we imagined and certainly better than what the critics imagined,” says Amador.
More importantly, he says, the deal is a testament to the Mexican state’s financial prowess.
The transaction included $2.4 billion in equity and $3.87 billion in debt. The debt consisted of $1.39 billion in a two-year bridge loan, which involved Barclays, BBVA, Santander and SMBC, and $2.48 billion in a 15-year term loan from Banobras, Bancomext and Nafin.
The deal was orchestrated through a special trust, the Mexico Energy Investment Trust (Fideicomiso de Inversion en Energia Mexico—Fiemex) within the National Infrastructure Fund. The assets are managed by Mexico Infrastructure Partners. Fiemex is the second largest portfolio of energy assets in Mexico after the state-owned Federal Electricity Commission (CFE), which has 43 gigawatts of installed capacity.
Amador says the structure of the deal and its success dispelled any notion that it was a kind backroom asset grab and that the state was not capable of orchestrating a complex transaction.
“The Mexican public sector has within its toolbox the capacity to carry out M&As with institutional investors and to go to the market with sophisticated investors with products that they want,” he says.
Global Coordinators: BBVA; Barclays, Santander, SMBC. MIP
Borrower’s Counsel: Cleary Gottlieb; Ritch Mueller; Greenberg Traurig
Lenders: Banobras; Bancomext; NAFIN; Barclays; BBVA, Santander, SMBC
Lenders’ Counsel: Milbank; Galicia; White & Case
Sponsors: SHCP (Secretaría de Hacienda y Crédito Público; MIP; FONADIN
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email awards@latinfinance.com