LatinFinance - March/April 2016 - 40

Building a platform
For a company to issue a Fibra-E, it must
derive at least 90% of its annual taxable
income from oil-related businesses,
electricity transmission or infrastructure
projects, says Alfredo Álvarez, a partner
with Ernst & Young in Mexico.
Pemex has not specified precisely which
assets it will place in a Fibra-E, but Campos
says the company has accumulated oil and
gas pipeline assets that can "be monetized
in the market."
"The main focus is on midstream with
either a take-or-pay contract or other
vehicles where you can guarantee cash
flows for investors," Campos says. "I would
say that the Fibra-E is the pillar of that
strategy."
Pemex outlined almost $49 billion of
midstream and downstream assets in
the fuel oil, petrochemical and natural
gas sectors as potential divestments, at
an investor presentation in London in
October last year. Offloading non-core
assets to private investors or placing them
into a Fibra-E trust allows Pemex to focus
on its core upstream and downstream
businesses, Mexican finance minister Luis
Videgaray says.
Pemex will need time to analyze
the untested vehicle and value assets
that could go into a Fibra-E, says Jorge
Mendoza, Mexico's deputy director
general of debt issuance. With oil hovering
around $30 per barrel and a peso that has
significantly devalued since the beginning
of the year, this is a formidable task.
"These assets will need to be audited and
need to have their own income statements,"
he says. "There is investor work that needs
to be done around the Fibra-E, making it
hard to commit to certain timing."
Some ambiguity remains around the
rates of return on potential Fibra-E assets,
says Francisco Vázquez-Ahued, assistant
vice president and analyst at Moody's in
Mexico.
"[Pemex and CFE] have to conduct an
accounting exercise. Value their assets,
get an idea of how to monetize them and
determine if they are presently over or

40 L ATINFINA NCE.COM - March/April 2016

undervalued," Vázquez-Ahued says.

JORGE MENDOZA, MEXICO

"THERE IS INVESTOR
WORK THAT NEEDS
TO BE DONE AROUND
THE FIBRA-E, MAKING
IT HARD TO COMMIT
TO CERTAIN TIMING"

The Buyside
Unlike assets in Mexican real estate
investment trusts known as Fibras, assets
in a Fibra-E may not be in the development
stage. Operating energy assets usually have
long-term power purchase agreements,
while transportation infrastructure assets
are built and financed around long-term
operating concessions. The length and
reliability of these contracts and related
cash flows, makes the Fibra-E an attractive
option for institutional investors looking
to match long-term liabilities, says Javier
Orvañanos, chief investment officer at
the pension fund managed by local bank
Banamex.

Pemex liability profile
A market bias

200
180

Other Liabilities

160

Pension Liability

140

Market debt

120
USD billions

In March 2015, for example, US
investment funds BlackRock and
FirstReserve agreed to spend $900 million
for a 45% stake in Pemex' Los Ramones II
gas pipeline, one of the first energy assets
to receive private investment since the
government enacted its energy reforms
in 2014.

100
80
60
40
20
0

2007 2008 2009 2010

2011

2012

2013 2014 2015*

Source: Pemex
*Through Q2 2015

The Fibra-E sponsors have to distribute
at least 95% of taxable income from the
assets to the certificate holders. These
distributions are not subject to income tax
withholding and the trust will not have
to make monthly estimated income tax
payments.
In addition to tax benefits, with Pemex
as the likely first issuer, investors will have
a name they can trust, Campos says. As a
Fibra-E issuer, Pemex will act as sponsor,
offtaker, operator and owner in the vehicle.
"We have a very good name from
accessing the debt markets for years,"
Campos says.
"The energy sector is underrepresented
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