Funding has become harder to find for large energy and infrastructure projects over the past two years in Latin America. This is mainly due to weaker commodity prices, government budget cuts and institutional weakness in some Latin American countries. In response to these difficulties, new financing instruments are beginning to emerge, while others that are already operating in the market are being modified, with the aim of reducing risks and attracting investment funds and other investors to finance infrastructure, energy and mining projects in Mexico, Brazil, Peru, Colombia and other countries in the region.
We have outlined below some of the ways that Mexico is dealing with these issues to finance its plans for the future. In the last couple of years it has created several new finance tools that could possibly be replicated in other countries.
Last year, the government announced various measures to promote the development of capital markets to finance infrastructure, among the most notable being the creation of infrastructure and energy investment trusts, known as Fibra E.
With this tool, companies can monetize their assets by placing their holdings in operating infrastructure and energy projects in a trust. The trust will issue investment units (known as CBFEs) that will be placed through a public offering on the Mexican stock exchange (BMV). At least 75% of Fibra E investments must be in assets such as highways or refineries, which are already generating known medium and long-term cash flow.
From an energy perspective, Pemex, which is currently severally unfunded, is studying the inclusion in Fibra E of pipelines, storage terminals and other logistics assets to focus on exploration and production, its core business. Electric utility CFE also experiencing a severe budget crisis is looking at placing on the market its transmission lines and networks.
From a construction perspective, Moody's stated in January, that construction companies such as Infraestructura Energética Nova and Fermaca Enterprises, which already have a portfolio of assets with stable cash flows could benefit greatly. The sale of a share in the assets of these companies would offer them an alternative source of financing, since the proceeds could be used to finance new projects.
In any case, both energy companies and large construction firms can profit from this new instrument given the tax advantages it grants to investors. Fibra E is a scheme in which neither...