Sempra Mexico Oversubscribed Ahead of IPO

Infraestructura Energetica Nova (IEnova) is heard with books well oversubscribed ahead of today’s scheduled IPO targeting at least MXP6.54bn ($528m). Investors have demonstrated interest in Mexican deals this year, though a tendency towards pricing at the bottom of the range suggests a disagreement on valuations that has characterized the IPO market in LatAm in the past few years. With IEnova, the Mexican unit of US-based Sempra Energy, buyers see the upside of energy reform initiatives targeted by the new administration of President Enrique Pena Nieto. This is weighed against the specifics of IEnova, notably a that much of the revenue depends on its natural gas business, including the Costa Azul LNG terminal, at a time when the need for importing gas in North America is dropping. “The reforms are a very positive theme in Mexico right now, though the natural gas dynamics are questionable,” says one investor looking at the deal, to be the first IPO in Mexico’s energy sector. Gas accounted for $478m of IEnova’s $608m 2012 revenue, after accounting for $551m in 2011, according to company documents. IEnova plans to sell 218m primary shares at MXP30.00-MXP34.00, according to a prospectus, indicating a MXP6.98bn deal at the midpoint. The total assumes a 15% greenshoe. The issuer is raising funds for general corporate purposes, investments and expansion. IEnova has about $1.35bn in project needs, including a 25-year contract to build and operate a pair of gas pipelines in the state of Sonora. Citi, Credit Suisse and Deutsche Bank are managing the local and international portions, joined by BBVA Bancomer on the domestic tranche. IEnova operates five gas pipelines and a regasification terminal in Mexico, and derives about 60% of its revenues from CFE contracts. The transaction is the last Mexican equity sale in the immediate pipeline, though a stream of Brazilian deals is set to hit the market in April.