Goldman Alums’ Private Equity Shop Backs Mexico Bond SaleKatia Porzecanski
Two months after Partners Group Holding AG bought a majority stake in a Mexican gas pipeline operator, the $43 billion investment firm is capitalizing on unprecedented demand for the nation’s corporate debt.
Fermaca Enterprises, owned by the Zug, Switzerland-based firm that specializes in private equity, sold $550 million of bonds overseas yesterday. The sale was the seventh first-time offering since August, when President Enrique Pena Nieto proposed changes to the state oil industry that were signed into law four months later. In the same span, only one debut issuer came from Brazil, the biggest developing-nation bond market.
Partners Group, founded by three former Goldman Sachs Group Inc. money managers in 1996, is seeking to profit from Mexico’s energy industry after the government ended its 76-year-old oil monopoly and from a boom in shale gas, according to the firm’s managing director, Jean Perarnaud. Fermaca, purchased from New York-based hedge fund Ospraie Management LLC for $750 million in February, has a 25-year transportation agreement with state-owned utility Comision Federal de Electricidad.
“The momentum is there for Mexico, fundamentally and sentiment-wise,” Perarnaud said by phone. “The timing is right.”
Fermaca, based in Mexico City, sold the bonds due 2038 to yield 6.375 percent. The senior secured amortizing notes, which will have an average maturity of 15 years, are backed by Fermaca assets including pipelines. Fitch Ratings and Standard & Poor’s rate the bonds BBB-, the lowest investment grade.
Mexico’s peso gained 0.2 percent to 13.0161 per dollar at 3:15 p.m. in New York, extending its advance this week to 0.9 percent.
Partners Group, started by Alfred Gantner, Marcel Erni and Urs Wietlisbach, will use proceeds of the sale to refinance both the debt that it took on to buy Fermaca and a loan the company used to finance construction of a pipeline, according to Perarnaud. It bought the 86 percent stake in Fermaca from Ospraie Management in February.
The agreement with CFE will last throughout the life of the bonds, giving investors comfort that they will get paid, said Ray Zucaro, who manages $390 million at SW Asset Management LLC.
“That kind of long-term contract with government agencies beyond the life of the bond where effectively you neutralize that counterparty risk -- those are the kind of bonds that will let you sleep at night,” he said in a telephone interview from Newport Beach, California.
CFE, as the company is known, plans to take advantage of legal changes to the energy industry to sell natural gas, Chief Executive Officer Enrique Ochoa said March 20. After allowing foreign investors to drill for oil for the first time since 1938, Mexico is looking to increase natural-gas supply, reduce its dependence on U.S. imports and lower the cost of electricity generation.
That push will increase demand for Fermaca’s gas pipelines, said Partners Group’s Perarnaud. The company is also bidding on multiple pipeline contracts being auctioned by CFE, he said.
“We found Fermaca was the perfect asset,” Perarnaud said. “It would be an upside if the oil and gas exploration happen in Mexico because our pipelines are actually located in one of the prospective areas for shale gas in Mexico. When you combine everything together, you end up with a good story.”
While Fermaca is taking advantage of the investor demand for Mexican assets after the country passed constitutional changes in December, the company is not dependent on those measures to prosper in Mexico, he said.
After pushing through sweeping changes in his first year in office that earned Mexico its highest-ever credit rating, Pena Nieto has struggled to overcome opposition to pass the secondary laws needed to implement the new oil legislation, damping demand for Mexican assets. He submitted his proposals on April 30, the last day of the congressional session. Lawmakers plan to vote on the bills during special sessions in June after Congress missed a mid-April deadline to pass the rules.
The delays helped spark a 0.14 percent loss in Mexican government debt in April, trailing the emerging-market average for the first time since January, according to Bank of America Corp. indexes.
Fermaca is also the first debut issuer from Mexico since Oceanografia SA de CV defaulted on $495 million in February, when the government seized the oil services provider following allegations it took out a $400 million loan from Citigroup Inc. under fraudulent circumstances. Citigroup determined that Oceanografia, which provides oil services to state-run producer Petroleos Mexicanos, overstated the collateral from its billings to the company that were used to back the loans.
Unlike Oceanografia’s agreement with Pemex, Fermaca’s contract with CFE doesn’t involve a third party, Perarnaud said.
“The story is much clearer with the CFE due to our bilateral contract,” he said. “There’s nobody in between. We’re providing a service and getting paid for it.”