Mexico’s attempts at mirroring the US’ MLP structure, known locally as the Fibra-E, has gotten off to a stuttering start. But investors and potential issuers are confident the equity instrument can kick-off in the coming years.
To date, only toll road concessionaire Pinfra has issued a Fibra-E and followed this up with another share issue. Other names, however, such as Pemex, Invex Controladora and CFE have talked up potential Fibra-E IPOs, but nothing has yet materialized.
Pemex, for example, was at one point considered the frontrunner for a Fibra-E, with many market sources predicting the state-owned oil company to be the first to roll-out the young equity instrument.
Pinfra’s success, however, has raised potential for other prospective toll road operators. Concessionaires with pathways towards the New International Airport of Mexico City Aiport, for example, could hit the equity capital markets for investments.
Aniceto Huertas, director of fundamental risk at Afore Citibanamex expects this potential pipeline to materialize in the next few years, however, because 75% of assets within a Fibra-E must have been operational for at least 12 months.
Imminently, some five or six transactions may hit screens in the immediate-term. Carlos Aiza, a senior partner at law firm Creel expects at least two to present themselves this year.
At present, eligible sectors that can tap into the Fibra-E pot comprise the midstream O&G space, power sector, road and transportation and telecoms. Aiza added, however, that this could be expanded to healthcare and education.
For Aiza, the rationale behind growth in the Fibra-E lies in its tax-driven incentives. Compared to investing in a public company, all Fibra-E investors save on the 10% withholding tax from all dividend disbursements.
For the country’s largest investor, the afores, these pension funds have a tax-exempt status and avoid the 30% corporate tax involved with other investments.
Afores, however, can only invest 20% of their portfolio in non-public instruments, so companies looking to spinoff assets, should be encouraged to IPO and thus avoid alienating Mexico’s largest investor base.
While afores remain crucial to the success of Fibra-Es, Aiza said pricing points could fall at the hand of Mexico’s lauded pension funds.
you have an investor group that has a tax exempt status and everyone else
evidently does not, afores will be dictating prices on a tax exempt basis, Aiza added. “This price may not work for everyone else… It will be interesting to see how this works out.”