Mexico MLPs to Feature Tax Deferred Benefit to Attract Firms

  • Tax changes to Mexico's MLP structure to be effective April 1
  • Private issuers interested in Fibra E, finance minister says

Mexico’s version of tax-advantaged master limited partnerships will allow the companies who list assets to defer some tax payments for profits earned in the process, a condition that should help attract more firms to participate, according to officials from Mexico’s Finance Ministry.

The tax model for the partnerships to invest in individual assets, known as Fibra E, will be similar to the one offered by the Mexican real estate Fibras, Finance Minister Luis Videgaray told reporters at a private equity conference in Mexico City. The Fibra E structure has generated significant interest from private issuers and investors alike and also could be used by Petroleos Mexicanos, he said. The new tax rules, which will take affect April 1, improve upon the structure announced by the government in September, Videgaray said.

Companies listing assets through Fibra E will be able to defer payment of the tax on the profit they derive, paying it off at 15 percent of the total annually over almost seven years, when they receive certificates from the Fibra instead of cash, Narciso Campos, head of the ministry’s banking unit, said in a phone interview. The vehicle is broad enough to allow the listing of infrastructure assets outside of the energy industry, including toll roads, water infrastructure or airports, Campos said.

The financing raised by the Fibra E instrument could be “in the tens of billions of dollars,” Jorge Dickens, managing partner at ACON Investments LLC, said in an e-mailed response to questions. The Fibra E structure will be well-received in Mexico given “the fiscal treatment and structure that it tries to replicate with the MLPs in the U.S., which has been very successful.”

Pemex could take advantage of Fibra E to securitize assets such as pipelines, helping ease its cash needs after failure to stem an 11-year slide in its production from aging fields, which contributed to 13 straight quarterly losses.

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