Mexico’s former President Andrés Manuel López Obrador came to power with big plans for the country: among them, overhauling energy policy, including an early pledge to return the state to majority participation in the country’s power sector with the avowed aim of safeguarding energy sovereignty and the energy transition.
That promise was fulfilled in his final year in office with the conclusion in 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.
It was the largest ever transaction in Mexico’s energy sector – and the largest in Latin America’s power generation sector so far this decade – and is seen as crucial for the development of Mexico’s federal energy policy. It wins pan-regional awards for Infrastructure Financing of the Year as well as Power Financing of the Year.
“This is what [President López Obrador] wanted and we were able to do it,” says Roberto Lazzeri, who participated throughout the negotiations as chief of staff to Mexico’s Secretary of Finance and Public Credit Rogelio Ramírez de la O. “We were able to achieve a policy goal that was set out by the president at the beginning of his term, which was for the public sector to have a 54% presence in the energy market.”
Around 40% the deal was funded by equity from Fonadin, Mexico’s infrastructure fund, which received $2.4 billion from the Ministry of Finance. The balance, $3.87 billion, was financed via a mix of local development bank and commercial bank loans: a $1.39 billion, two-year bridge loan, arranged by Barclays, BBVA México, Santander and SMBC; and a $2.48 billion, 15-year term loan from development lenders Banobras, Bancomext and Nafin. The latter two banks joined BBVA México in providing an additional $300 million letter of credit facility. As part of the development bank facility, MIP entered into hedging transactions for $600 million
The ministry brokered the deal through Fonadin, creating a special acquisition trust, Fideicomiso de Inversión en Energía México (Fiemex Energía), within the fund. The assets are now managed by MIP in a structure Lazzeri says helped avoid any strain on public finances. “This project was fiscally responsible, did not put stress on public finances, created opportunities for pension funds and complied with a policy initiative,” says Lazzeri.
Another benefit of the deal, he notes, was in creating new investment opportunities for local pension funds, which he says regularly bemoan the dearth of investible assets domestically. The government in August sold $852 million of equity in the plants to local buyers.
The deal was in motion for some time before news broke in early 2023, with only the president, the finance secretary and handful of inner circle officials involved at first, says Lazzeri. Ultimately, the deal closed less than a year from the official launch of negotiations of the initial terms under an MOU between Iberdrola and MIP.
Barely seven months later, the government moved to refinance February’s bridge loan via the international capital markets. Fonadin-backed Fiemex sold $1.49 billion of 7.25% senior secured notes in September in a deal that marked the largest single-tranche project finance bond issuance in the Mexican energy sector and one of the largest ever project bond issuances in Latin America. Barclays, BBVA, Santander, and SMBC acted as global coordinators and joint bookrunners, and BNP Paribas and Scotiabank participated as joint bookrunners.
“The idea was always to come up with a long-term financing structure that could quickly maximize returns,” Lazzeri says. “It is a pilot program and something that we think could be the norm going forward.”
The acquisition ultimately included 12 natural gas-fired combined cycle power plants with capacity for 8.53GW and a small wind farm with 103MW. Ten of the plants, accounting for 87% of the energy produced, had power purchase agreements with the state-owned Federal Electricity Commission (CFE). In all, Iberdrola unloaded 55% of its business in Mexico – but still retained 15 plants that generate a total of 6GW – leaving it a major player in the sector.
Sponsors: SHCP (Secretaría de Hacienda y Crédito Público), MIP, and FONADIN
Sole MA Advisor: Barclays
Global Coordinators: BBVA; Barclays, Santander, SMBC. MIP
Lenders: Banobras; Bancomext; NAFIN; Barclays; BBVA, Santander, SMBC
Borrowers’ Counsel: Cleary Gottlieb; Ritch Mueller; Greenberg Traurig
Lenders’ Counsel: Milbank; Galicia; White & Case
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email awards@latinfinance.com