LatinFinance - September/October 2016 - 44

Mexican private equity fund Wamex, says
Pemex is being "practical" by opting for
sale-leasebacks rather than a more complex, untried financing method like the
Fibra E.
In a Fibra-E, "you have to take into account project needs, sponsor needs and
investor needs," he says.
While the sale-leasebacks helped Pemex
segregate some midstream assets, it raised
doubts over when the company would roll
out its Fibra E.
"It is an instrument, and one of many,
that we're evaluating," Pemex chief financial officer Juan Pablo Newman said in an
interview with LatinFinance.
The equity instrument was modeled
after the Mexican version of a REIT, the
Fideicomiso de Inversión en Bienes Raíces,
or Fibra. Designed so that companies can
place operating infrastructure and energy
assets into a holding trust, which is then
taken public, the Fibra-E was supposed to
be championed by Pemex, with its first trust
originally due to launch in the first half of
this year.
Diversifying the Fibra E
Any company considering a Fibra E should
take a close look at existing Mexican Fibras,
Contreras says. "The design takes a lot of
the good things from Fibras. And in April
the government came up with the finer
details, which cleaned the structure up."
The changes included tweaks to tax treatment and clarifications about which assets
qualify for inclusion. They also put an end
to uncertainties that had delayed issuance
under the structure, says Antonio Franck, a
partner at law firm Jones Day in Mexico City.
Those "finer details" also made clear
that a broad range of assets were eligible
for financing through the Fibra E, not just
energy-related infrastructure. The more
precise revisions, says Franck, specified
"assets producing income", which opened
up the structure to other entities operating
railroads, prisons, potable water plants and
more.
In fact, the first company to the starting
line is set to be toll-road concessionaire
Pinfra. The company announced plans in
August to launch a Fibra E through its subsidiary Pacsa before the end of this year.
"Pinfra coming out first is not surprising
because they are not subject to Pemex's
internal headwinds," says Rodrigo Gómez,
another partner at Jones Day.
Pinfra holds the operating concession
until 2049 for one of Mexico's busiest toll

44 L ATINFINA NCE.COM - September/October 2016

roads, the Mexico City-Toluca toll road,
which will form the basis of the trust. Pinfra
plans to use proceeds from its first Fibra E
to fund future toll-road projects.
Mexico's pension funds were involved
in structuring the instrument and Javier
Orvañanos, chief investment officer at pension fund Afore Banamex, says long-term
contracts and related cash flows from infrastructure trusts match up with retirement
fund administrators' investment criteria.
Transport-related infrastructure offers
the long term investments and steady cash
flows that the pension fund administrator
typically looks for when investing, he says.
Orvañanos adds the assets in a Fibra-E
trust must have the potential to withstand
exposure to economic circumstances over
a long period.
If the initial public offering of Pinfra's
Fibra E is successful, it is likely to open the
door for more from Mexico's engineering
and construction companies. That sector
is perhaps better placed to benefit from
the new equity instrument than the energy
industry, Moody's suggests. Companies
such as Fermaca Enterprises or Empresas
ICA could use a Fibra E to monetize some of
their assets and reduce leverage.
"If Pinfra pulls off its IPO, then I see a
lot of movement into other infrastructurerelated Fibras," Gómez says. "The market is

VICTOR HUGO LUQUE, SENER

"WE ARE TALKING
ABOUT A STRUCTURE
WHERE UNCERTAINTY
WILL EXIST UNTIL
THE FIRST [FIBRA E]
COMES OUT. IF WE
GET THE FIRST ONE
OFF THE GROUND
THIS YEAR, THEN
YOU'RE GOING TO SEE
MANY NEW ISSUERS
FROM THE PUBLIC
AND PRIVATE SECTOR"

hungry for new Fibra paper because the real
estate market is full and the Fibra E presents
value for investors."
No one is ruling out interest from Pemex,
or other state-owned companies. Utility
Comisión Federal de Electricidad (CFE)
may also be a contender for a Fibre E IPO.
Both companies are undergoing structural
transformations and reshaping as smaller
entities, to increase their competitiveness in
specialized areas.
Pemex sees the Fibra E as a way to finance pipelines or refineries, to allow it to
focus on upstream activities such as oil and
gas exploration. CFE, meanwhile, is poised
to place some of its transmission lines or
electrical circuits in its own Fibra E trust.
Neither entity has the capital to carry
out necessary investments in its midstream
businesses nor, as government-controlled
companies, can they sell shares directly.
Placing some assets in the hands of a new
investor base should corral much-needed
funding into Mexico's midstream facilities.
Risk aversion
Selecting these assets, however, is no easy
feat. While transport-related infrastructure
provides some predictable and stable cash
flows through traffic tariffs, energy-related
assets remain plagued by low oil prices.
Combining this uncontrollable factor
with the usual jitters associated with any
new investment instrument has left Pemex
and CFE reluctant to roll out their Fibra Es.
Victor Hugo Luque Salcedo, director
general for Sener, Mexico's energy ministry,
says risk-averse investors want certainty
from their investment before something
new can get off the ground.
"We are talking about a structure where
uncertainty will exist until the first [Fibra E]
comes out," he says.
CFE is working "on the final processes"
for its first Fibra E, and Luque is confident
the utility will unveil plans before the year
is up.
He says CFE's operations are evolving
toward that of an "independent or private
company" and talks with sovereign wealth
funds and venture capitalists have heightened interest in a possible Fibra E. "The
main goal is to return value to the Mexican
state as its shareholder," he says.
Should the stars align for transformation
of Mexico's state-backed entities, Luque
suspects a wave of new equity issues in 2017.
"If we get the first one off the ground this
year, then you're going to see many new issuers from the public and private sector." LF
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