February 5, 2019 / 2:56 PM / 11 days ago

Private equity eyes long-term with Latin American infrastructure buys

NEW YORK, Feb 5 (LPC) - Global institutional investors are circling a swathe of energy-related infrastructure assets in Latin America to increase their exposure in a region rife with more uncertainties but offering greater returns than those in more developed markets such as the US.

Private investors or pension funds with cash burning holes in their pockets are increasingly participating in leveraged acquisitions of assets from Chile to Mexico. Mainly in the energy and infrastructure fields, such assets come with assigned long-term operating concessions and line up with the buyside’s taste for longer-term investments, banking sources said.

“Private equity or infrastructure funds, there is a lot of money chasing fewer deals,” said a mergers and acquisitions (M&A)investment banker involved in the region. “They are chasing these assets to justify the need for returns and Latin America offers a long-term play for these buyers.”

In developed markets, heightened competition from a broader investor base is increasing asset valuations for projects in the energy and infrastructure fields, making it harder for local investors to strike a deal. In the US specifically, borrowers’ access to cheaper public sources of funding has driven opportunistic investors to Latin America where private projects or acquisitions have more limited borrowing options and are more likely to tap banks and institutional investors for funding.

“The competitiveness for North American infrastructure assets has left a shortage of real deals,” said Alex Bertram, a managing director and head of infrastructure financing for the Americas at ING. “If investors are willing to take the cultural leap [into Latin America] and take a punt on the currency, then there are better returns available.”

Medium-term bank financing, with tenors ranging from three to seven years, is increasingly backing potential acquisitions in Latin America, while bridge loans provide a short-term cash injection before being taken out in the capital markets, sources said.

POWER GRAB

Canadian investors, Middle Eastern and Asian sovereign wealth funds including the United Arab Emirates’ Mubadala, and Temasek Holdings and GIC of Singapore are some of the wealthy institutional accounts willing to bet big on Latin American infrastructure.

Pension fund Caisse de dépôt et placement de Québec (CDPQ) aims to funnel up to US$1bn into infrastructure projects in the region, while Canadian private investor Brookfield has completed a slew of purchases including Colombian power company Isagen and Brazilian natural gas pipeline operator Nova Transportadora do Sudeste in 2016 and 2017, respectively.

“Canadian investors are becoming more aggressive in Latin America,” the M&A banker said. “These companies are forward-thinking and they are a long-term source of funding.”

CDPQ, along with consortium member and French electric utility Engie, are also the leading bidder for another Brazilian natural gas pipeline – Transportadora Associada de Gás, an acquisition that will need as much as US$8bn in bank debt, LPC reported.

Throughout the region, power and energy companies are gearing up to sell select assets in Latin America, and institutional money is expected to play a key role.

US power services unit Sempra Energy said in January it had started the process to sell its South American businesses Luz del Sur in Perú and Chilquinta Energía in Chile. Investment bank Lazard is advising Sempra on the sale, according to the banking source.

Texas-based Arroyo Energy Investors is in talks with several bidders over the sale of a power plant in Nuevo León, Mexico, banking sources said.

Emerging markets energy investor Actis, along with Sempra’s Mexican subsidiary Infraestructura Energética Nova, Spanish utility Iberdrola and US electricity distributor AES Corporation, are some firms interested in buying the project that could go for as much as US$350m, according to sources familiar with the sale.

Elsewhere, Brookfield Asset Management is shopping its controlling stake in Colombian electricity generator Empresa de Energía de Boyacá, AES Corp’s Chilean subsidiary AES Gener has approached Credit Suisse to potentially sell its Colombian subsidiary AES Chivor, and Citigroup is advising Engie and Chilean copper miner Corporación Nacional del Cobre de Chile over the sale of the Mejillones liquefied natural gas terminal in Antofagasta, Chile.

Credit Suisse, Citigroup, Brookfield, Lazard and Sempra did not respond to requests for comment. (Reporting by Aaron Weinman. Editing by Michelle Sierra and Lynn Adler)

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