From day 1 there were indications that the “new nationalization” of the electricity sector had private components. Mexico Infrastructure Partners, the entity to which Iberdrola is selling the 13 power plants, is a private fund manager. And, although it is controlled by the government, Fonadin, the public entity that would provide the resources, has the stated mission of “maximizing and facilitating the mobilization of private capital.”
The data has been accumulating. A few days later, Rogelio Ramírez de la O, Secretary of Finance, revealed from the National Palace that institutional (private) investors would contribute 49% of the equity of the new platform.
But, until last week’s interview with Undersecretary Gabriel Yorio with Bloomberg in New York, it had not been clear that the government wants all of “this to be a market instrument.” Yorio told Shery Ahn that “the financing structure for the transaction with Iberdrola is one that depends on equity and private debt.” Until then there could be doubts about the equity part. But he immediately clarified: “private equity and private debt”. This means that “the Mexican government is providing bridge funding, or a bridge loan in this – I would call it – first stage of the project.” However, “eventually we want to have a specific purpose vehicle that can take advantage of the local market or international markets.” At another point, he noted that the Treasury is “using the role of the Mexican government as an investor to provide a bridge to the loan.” Lest anyone misunderstand that there was going to be a permanent deployment of government resources here…
It is the inverse of the strategy that the Treasury has followed with Pemex. To build Dos Bocas, the government is transferring the resources to Pemex. The equity of Dos Bocas will be from Pemex. Same with Deer Park. The property title to the asset does not belong to Fonadin; much less a private fund manager. It’s from Pemex.
The timidity of the government in the Iberdrola transaction also contrasts with the courage of its unrestricted support for Pemex. “This Administration is probably the one with the most commitment to Pemex,” Yorio himself boasted in the interview with Bloomberg. “We will be there if Pemex encounters difficulties.” He was particularly clear in saying that he was not only thinking in terms of joint liability management transactions. “I have learned that with Pemex there have to be several (support) measures, not just one.”
Returning to the transaction with Iberdrola, depending on the support of private investors has significant implications for the closing of the transaction, which is not clear that it is so close to occur. If $6 billion (or some comparable amount) needs to be lifted from the markets, tagging it specifically for the ‘new nationalization’, the high EBITDA multiples that seem implicit in asset valuations are just one of the significant challenges to overcome. . But more public detail is needed to be able to deepen the analysis.
For now, what is most notable is the very small role to which the CFE has been relegated. Not only could it not, or they did not allow it, to buy the portfolio of Mexican assets of the Spanish company that it criticized the most. If it does end up as the operator of those assets, it will effectively end up employed by the private capital that can. It’s quite ironic. Giving private investors the equity in assets that the government would operate sounds like the most extreme—and perhaps least convenient—form of privatization anyone could imagine.
@pzarater
