Solutions for Combined Project FinanceMon, 02/25/2019 - 16:42
Q: What are Mayer Brown’s primary strengths relating to Mexico’s energy industry?
A: We provide Mexico’s energy industry the combined experience of our local team and Mayer Brown’s international team, cumulating over 30 years of experience. Mayer Brown’s Mexico team has actively participated in the country’s energy industry since the mid-1990s. We cover both the electricity and oil and gas sectors and have done so since the emergence of the first IPPs and the unlocking of oilfield services to private players. We have staff across various offices in the US, including New York; Washington, DC; Chicago, as well as in Asia and Europe. They have worked tirelessly to evaluate Mexico’s opportunities in both sectors and have developed a capacity to work as a single unit even across continents to provide our clients an integral vision of our expertise. Mayer Brown Mexico now echoes this approach in the upstream, midstream and downstream segments, and with the long-term electricity auctions, renewable energies, CFE’s Qualified Supply Contracts, the secondary market for electricity assets and energy infrastructure tenders coordinated by CFE, PEMEX, CNH, CRE, ASEA and the Ministry of Energy.
Q: How does Mayer Brown want to position itself among Mexico’s new local and foreign energy players?
A: Given our decades-long experience in the industry, we can provide context for the reform and how its implementation has drastically modified the industry, with in-depth knowledge of the different sectors, industries, key players and stakeholders. In doing so, we can map different risks and provide adequate risk-mitigation measures and structures. These projects require interaction with both existing and new government entities, a process we can streamline for our clients.
Q: What kind of financial entities are most suited to assisting the financing efforts of development banks?
A: For Mexico’s renewable utility-scale projects to ensure long-term financial viability, particularly considering the package prices obtained during the long-term electricity auctions and their inherent margins, they require long-term financing options that commercial banking by itself is not able to provide. Developers have primarily turned to multilateral banking institutions, development banks and Export Corporation Agencies (ECAs) to provide for their financing needs. Commercial banking’s participation is limited to certain tranches of these loans.
Our experience tells us that this financing scenario is far from permanent as we are witnessing a soaring number of financial products with different characteristics and risk profiles. Mayer Brown has adapted by combining different expertise and practice areas to provide our clients a better service and stronger analyses of these new financing options. Projects financed through mini-perms followed by project bond or corporate bond-shaped take-outs are an example of this trend. The challenge is to ensure the harmonious coexistence of these options within the same project and how, in the event of a refinancing scenario, the relevant mechanisms to soften its effect can be established.
Q: What primary factors have allowed companies to showcase aggressive pricing bids in the long-term electricity auctions?
A: Mexico’s long-term electricity auctions and the electricity chapter of the Energy Reform is a success story. We consider it as such because CFE, the Ministry of Energy and CENACE implemented auctions that were well-received by Mexico’s infant energy market. The prices obtained during these auctions is multi-pronged. This is partly due to the strategy followed by some participants to generate a critical mass of projects to obtain better financing conditions and attract institutional investors, while there is a prevalent focus on the continuous cost reductions associated with technologies for renewable energy. The third long-term electricity auction introduced the market to the Clearing House, showcasing Mexico’s serious intent to implement best practices and work toward international standards.