Ienova Share Sale Looms as Sempra’s Mexico Expansion Moves Ahead

  • Ienova seeking up to $1.5 billion in follow-on share sale
  • Analysts estimate around 17 percent return in the coming year

Sempra Energy’s Mexico expansion is taking off.

In the past month, Infraestructura Energetica Nova SAB, Sempra’s Mexico unit, acquired a $1.1 billion stake in a pipeline company, carried out a $375 million purchase of a wind power complex and won two solar power projects in an auction. As soon as next week, the company is expected to issue new shares in a sale to raise as much as $1.5 billion.

"The company is in a stage of rapid growth," Gerardo Cevallos, equity analyst at Vector Casa de Bolsa who recommends buying the shares, said in a phone interview from Mexico City. "The company has had a stronger year than what they likely expected."

Sempra, which said in July that it would shrink its buyback program to free up capital for Mexico and Latin American projects, is making good on plans to invest $3 billion in the region by 2020, primarily through expansions in Mexico. Already the country’s largest private pipeline operator, Ienova won rights to develop a $2.16 billion underwater pipeline from Texas with TransCanada Corp. in June. It is likely to bid on a natural gas supply project in Baja California before the end of the year, according to Cevallos.

Meanwhile, the Mexico follow-on share sale, which aims to raise $1.3 to $1.5 billion, is seen driving Ienova’s share rally in the next year. Fourteen of 16 analysts that cover the company recommend buying the shares. Analysts estimate a return of around 17 percent in 12 months.

Pipeline Stake

"It is very good that the amount of the follow-on is known, as the market has been waiting for it," Marissa Garza, sub-director of equity analysis at Grupo Financiero Banorte SAB, said in a phone interview from Mexico City. Ienova shareholders originally approved the sale last year. Mexico’s antitrust agency requested modifications to the $1.1 billion Gasoductos de Chihuahua pipeline stake purchase, which delayed the follow-on plans.

"The follow-on will go directly to the two recent acquisitions and gives the company a profile to continue growth," she said.

Ienova, Mexico’s only publicly traded energy company, will offer 323 million shares as soon as Oct. 13 following a 10-city roadshow, according to a statement on Oct. 3. The offer includes upsize and over-allotment options totaling 57 million shares. That may raise between 24.5 billion pesos ($1.27 billion) and 28.8 billion pesos, according to Bloomberg calculations based on Monday’s closing share price.

Sempra, Ienova’s largest shareholder, will buy as much as $350 million worth of shares, according to the statement. Ienova’s shareholders will meet Oct. 7 to approve the offering.

Sempra’s push into Mexico coincides with the country’s 2014 opening of the energy market to allow for private competition and boost investment in the oil, natural gas and electricity industries.

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