Brookfield Sees U.S. Protectionism Creating Opportunity in Mexico

Updated on
  • Brookfield Infrastructure CEO says weak peso helps investment
  • Focus shifting from Brazil to Mexico amid Trump protectionism

Trump's NAFTA Anger Matched by Mexican Citizens

Protectionist measures proposed by the Trump administration may soon create investment opportunities in Mexico as the peso weakens and capital sits on the sidelines, according to the head of Canadian asset manager Brookfield Infrastructure Partners LP.

“The level of uncertainty and anxiety related to Mexico’s future economic performance has not been this bad in over 20 years,” Sam Pollock, chief executive officer, said Wednesday on a conference call discussing the Toronto-based company’s earnings.

The threat of a border tax and changes to the North American Free Trade Agreement pushed the Mexican peso to a record low this month. This means direct foreign investment is likely to slow while the U.S. and Mexico work out their issues, Pollock said.

Brookfield Infrastructure, the publicly-traded subsidiary of Brookfield Asset Management Inc., is a counter-cyclical investor, seeking opportunities when other buyers flee a sector or country. The most recent example has been its focus on Brazil, where several conglomerates have been forced to sell assets amid a corruption scandal that rocked the country.

Petrobras Sale

Brookfield led a group of investors to acquire a 90 percent stake in a network of natural gas transmission assets in southern Brazil from Petroleo Brasileiro SA for $5.2 billion last year.

The situation in Mexico might create some similar opportunities in that country, Pollock said.

“We believe that concerns over the country may overshoot, much like they did in Brazil, and as a result our business development efforts have increased to capitalize on opportunities that may arise,” he said.

Brookfield Infrastructure has had an office in Mexico for about three years, Pollock said, although the broader Brookfield network of businesses has been in the country longer.

“What attracted us to the Mexican market more recently was the liberalization of the energy sector,” said Pollock, who added he continues to meet with companies like Petroleos Mexicanos and government ministers there on a regular basis as the sector opens up.

Brookfield also has an interest in some the transportation assets in the country, he said.

Net Income

“Despite a number of the negative trade winds that are in the market, given the devaluation of the peso, it could represent a very interesting entry point for people like us,” he said.

Brookfield Infrastructure also boosted its quarterly distribution Wednesday 11 percent to 43.5 cents a unit. The company reported net income of $162 million, or 40 cents per unit, up six-fold from a year ago when profit was $25 million, or 2 cents a unit. Funds from operations grew 20 percent to $245 million, or 69 cents a unit, from $204 million, or 59 cents a year ago. Analysts had been expecting FFO of 67 cents a unit, according to data compiled by Bloomberg.

Pollock said there was an opportunity to review the distribution again at midyear.

Aside from Mexico, Pollock said his firm is increasingly finding opportunities in corporate carve-outs in North American energy and Indian telecommunication sectors.

Brookfield made its first infrastructure investment in India last year, and sees plenty of opportunities there as the investing environment becomes more amenable and GDP growth exceeds those of developed nations, Pollock said.

“In our business plans, we traditionally estimate deploying anywhere between $500 million to $1 billion annually in new investment activities; however, our current pipeline is very robust,” Pollock said. “As a result, we believe Brookfield Infrastructure is well-positioned to continue to outperform its objectives and extend its track record of delivering double-digit growth in 2017.”

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