Introducing Mezzanine FinanceFri, 02/01/2019 - 11:28
Q: Why should renewable energy project developers rely on Sinia Renovables as a financing source?
JD: We are a relatively new player in the Mexican market that provides financing solutions directed at project sponsors, such as mezzanine financing and equity participation, differentiating us from several other financing firms that usually only provide one or the other. Sinia Renovables is backed by more than 20 years of experience on a global scale, primarily focused in Spain and the UK. Since July 2017, we have been looking to set a foothold in the Mexican market, successfully closing mezzanine financing and equity investments. Sinia Renovables is keen on replicating its tradition of establishing long-term relationships with its clients in Mexico. We have an approved fund valued at €150 million (MX$3.4 billion) to invest in Spain, the UK, Mexico and other locations in Latin America. The lion’s share of this approved line will be allocated in Mexico to build up a diversified portfolio of both US dollar and Mexican peso-based PV, wind and hydroelectric projects, combining legacy, long-term electricity auction and merchant projects.
NS: We are the private equity branch for renewable energy projects of Banco Sabadell. We want to be more than a mere funder and become the go-to partner for Mexico’s project sponsors. So far, we have closed mezzanine financing totaling MX$400 million with Grupo GEMEX’s two operational 50MW wind farms in Tamaulipas. Our second success story is the MX$475 million in mezzanine debt and 10 percent equity to cover the project’s construction risk.
Q: What sets apart a project sponsor partner from a funder?
NS: Funders provide senior debt to fund projects via project finance. To actually build the project, equity is required, usually provided by the project sponsor, as well as complementary financing from banking institutions. We support project sponsors by providing funds that banking institutions are unwilling to provide, becoming partners and accompanying the sponsor throughout the development stages of the project. Once the project is completed we can sell it and rotate our portfolio. Our ideal partners are midsized sponsors because largescale utilities can finance their projects independently.
Q: What lessons learned from operating in Spain and the UK are you looking to replicate in Mexico?
NS: Our experience allows us to clearly identify the project sponsors we want to partner with. Our repeat rates for financing projects with the client portfolio we developed in Spain showcase our capacity and commitment. Mexico will be the trial market for our mezzanine financing as the Spanish market requires other types of solutions and Mexico still has gaps to cover.
Q: What is the key differentiator for mezzanine financing compared to other financing sources?
JD: We were able to design a product that provides the right balance between senior debt and equity with the flexibility to adjust to our clients’ requirements. To that end, Sinia Renovables provides mezzanine credit for terms longer than 10 years, considering that by year three to five of the project’s development, the credit can start to be refinanced as the construction risk is no longer present and the debt capacity of the project can be increased from mezzanine debt to senior debt.
Q: What is the relationship between financial structuring and risk mitigation in renewable energy projects?
JD: The critical part is for all stakeholders to fully grasp risks involved. Our analysis always makes a point of understanding the fundamentals of a projects: top-tier components, optimal levels of natural resources and execution of our financial runs over multiple scenarios.
NS: Sinia Renovables has a balanced team of expert economists and engineers. While project development is primarily a financial structuring business, the technical and engineering aspects must also be thoroughly examined to assess its long-term potential.