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Bankers set to work as energy reforms passed

Aug 11, 2014

Private sector financiers have high hopes for the Mexican energy industry, after secondary legislation passes congress

     
   

 
   A Pemex oil platform near Campeche.
Source: Pemex press office
 
Bankers in Mexico are expecting a surge of advisory and financing work in the coming months and years, after the congress passed secondary legislation on energy reforms last week.

"Private companies are looking to see how the implementation of the new rules will proceed, but within the next two years, they will require a huge amount of equity and debt to seize the opportunity," says Gabriel Millán, partner at Mexico City investment banking and project finance boutique, Serficor.

"Mexico's capital markets are ready for this."

The congressional approval opens the way for licenses and profit and production sharing agreements to be extended to the private sector, after Pemex chooses the assets it wants under a process known as Round Zero, due to be finalized in September.

Pemex itself could shed assets after the reform, chief financial officer Mario Beauregard told LatinFinance in late July.

Local groups such as the Slim family's Grupo Carso and Monterrey-based conglomerate Grupo Alfa have already been expanding in the sector in markets like the US and Colombia, and are expected to participate in some of the opportunities to come in Mexico. Listings of energy subsidiaries of local and international groups could form part of the funding options, bankers say.

Private equity groups are also looking around, despite a lack of local firms due to the previous monopoly enjoyed by national oil firm Pemex. Private equity funds raised three times as much in 2013 as in 2012 for Mexico investments.

There is pent-up demand for securities issued by private energy companies, given the previous monopoly of the state, bankers in Mexico say. Despite the high proportion of energy firms on international stock exchanges, there has only ever been one IPO of a Mexican energy company, when US energy firm Sempra listed its Mexico subsidiary, IEnova, in 2013.

While Pemex itself will remain the largest player with the biggest funding needs, Beauregard said Pemex is already talking to oil majors about potential joint ventures, to be financed on a non-recourse basis: previously only an option for projects like pipelines and its non-Mexican assets. Such tie-ups could be include assets migrated from its Round Zero assignments, he says.

"Our exploration and production division is currently speaking with the oil majors, so you might hear some announcements by the end of the year," said Beauregard.

The approval of the reforms was a victory for President Peña Nieto, Goldman Sachs analysts said. "The energy sector reform was perhaps the most important structural reform of the last 30 years and potentially an event of the same caliber of the 1994 NAFTA agreement," they wrote in a report. The main risk would be implementation and whether the economics of investments would be attractive for private players, they added. LF


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