Juan Francisco Toro
Astris Finance

Company's Business Is to Look After Client Risk

Wed, 02/24/2016 - 14:53

Eight years ago, Astris Finance, an investment and transaction advisory company specialized in infrastructure and energy, decided to establish operations in Mexico. Being active in every country in Latin America prompted Astris Finance to enter Mexico. “It seemed like an interesting market in the sense that we can actually try to understand and quantify the risk, whereas in other countries, the attractiveness of the market is limited to its size,” explains Juan Francisco Toro, Director of Astris Finance. When comparing Latin American countries, he believes only Brazil and Mexico have the proper industrial drive, with companies establishing operations in these countries in order to export to Asia and the US.

Although the size of the market was attractive for the firm, the size of the potential market made the country even more interesting. “When looking at the states that are not being properly served, there is potential to install efficient power plants. Given the natural resources, such as hydro, the potential market could be lucrative, but there are areas I believe require development,” asserts Toro. He also says the way in which CFE works made Astris Finance comfortable with the idea of working in Mexico. “On CFEsponsored projects, the type of support the utility would provide and the regulatory process was relatively easy to understand.”

The firm works in different sectors in Latin America, but its focus in Mexico has been on infrastructure, transportation, water treatment, and energy. For the latter, Astris Finance has worked on most projects related to oil and gas, such as pipelines. In electricity generation, the firm has worked on Differed Impact on Registered Expenses Investment Projects (Pidiregas) for hydro developments, with involvement in the bidding process of Chicoasén II. Although Astris Finance does not focus on wind power in Mexico, it has worked in wind projects in Europe. The reason why the company has faced limitations in the Mexican wind energy industry, explains Toro, is that its development has been a corporate-led process. “The projects are possible with procurement of an AAA off-taker. The projects were so bankable, that a financial advisor became unnecessary since off-takers were major corporations, eliminating the level of risk,” he explains, adding that the technology was secure due to its maturity, and projects resulted in MX$0.5 per kilowatt hour. “Our services are required when a client needs to facilitate the bankability of a project, which was not the case for wind energy developments.”

The company also has a strong solar franchise, but Toro admits he had higher hopes for the Mexican solar industry. He explains that, in Mexico, there are other resources in addition to solar irradiation that are not available in other countries where solar has become strong. The areas of Mexico where solar could be developed presented conditions that made projects difficult to implement. For instance, potential locations were far from the transmission infrastructure, resulting in a need for large investments. “The fact that the locations are so far from the grid made investors think of solar as base load electricity, and that was a huge mistake. The requirements for batteries and additional investments for developments of 25-30MW basically killed most projects,” he comments. In his view, financing has also been an obstacle for the solar industry. “CTCP, the risk in the different nodes, has been a challenging concept to explain to banks but now development banks are beginning to take that risk. All the commercial banks we have talked to are unwilling to take the risks implied by solar energy because there is no stability in the cost of electricity.” In Toro’s opinion, the rules will have to change to accommodate these projects.

Given Astris Finance’s strong relationship with investors in the electricity sector, such as funds, the firm has mandates to seek projects and companies that can be sold or are interested in divesting. Toro perceives significant opportunity resulting from the current available liquidity in the markets. There are also some companies that might want to exit the market. “We are working with certain infrastructure companies who want to get out of the industry, change industries, or divest,” he comments. There are several infrastructure and energy funds that want to invest in energy companies, and Astris Finance advises clients on possibilities within the industry.

For Toro, there are plenty of opportunities in projects where the industrial and energy segments overlap. He believes that the way in which states have attracted investment to industrial projects is by presenting similar structures to PFI or PPS. In the energy segment, there are plans for industrial developments over the next five years, which will create offtakers for electricity projects. The region where these projects take place will have a direct impact on the models chosen to implement the projects. “CFE could be the developer in partnership with a private investor, or alternatively a particular technology may have a strong link to the location. Everything can be intertwined,” he comments.