Right Funding for Future of a Restructured MarketWed, 01/22/2014 - 13:16
Q: How will Scotiabank participate in the development of the Mexican oil and gas industry?
A: Scotiabank Mexico, through our corporate investment banking area known as Global Banking and Markets, is active in project financing. We are leaders in the financing of the Tarahumara pipeline, which received US$378 million in investment. Its main purpose is to transport natural gas from the US border into Mexico, which is subsequently delivered to a CFE electricity plant. This is just an example of how Scotiabank Mexico is currently involved with Mexico’s energy sector. We plan on maintaining this leading financing role by fostering and giving professional advice on new infrastructure projects in the oil and gas industry. We already do this under the current regulatory framework and operational environment, so I am certain there will be new opportunities for us in the near future. As investment increases and the market opens, there will be a need to separate production from the transportation areas in the sector and create new infrastructure. This situation will open up opportunities for project financing on both the production and distribution sides. We hope that Scotia Waterous, the oil and gas arm of Scotiabank and a global leader in oil and gas M&A and advisory services for the financing and management of energy-related projects, will bring its expertise to bear on Mexico’s future opportunities, whether advising the government when it requires expert insight, or other companies looking to establish themselves in the country’s energy market. We are well-regarded for our understanding of how to handle these types of financing, as well as how to look for new investors to participate in such projects. We can basically offer an end-to-end solution for companies that are coming to Mexico looking to invest in the oil and gas sector. These solutions may also be offered to governments that want to create frameworks for bidding processes or want to look for companies to partner with.
Q: What risk factors will be considered when evaluating project financing for companies just beginning to operate in Mexico?
A: The way risk is normally assessed is by looking at political in-country uncertainty, based on which Mexico seen as a very low risk environment to operate in. Another factor analyzed is the certainty within the contracts themselves, the court system, and all processes related to any kind of contract. At this point, the existing risk relates to how clear and straightforward contracts will be, and who they will be with, whether with PEMEX directly or with other government entities. Mexico’s court system now provides a lot more certainty around contract laws than ever before, which is excellent progress for the industry. Therefore, the only risky area that remains has to do with the clarity of the contracts, but this might be corrected with the secondary laws. It is important that Mexico learns from existing international models that work well in order to successfully attract investment to the energy sector.
Q: How will Scotiabank Mexico help SMEs looking to create a place for themselves in the new industry?
A: The natural evolution will be for more suppliers to benefit from large projects in the industry. In Canada, deepwater drilling activities worth billions of dollars create business opportunities that trickle down to very small businesses. In regions where large investments are made, small businesses get to be part of the project by providing simple but necessary services, such as food or transportation. Scotiabank loves to participate in this financial spillover and help smaller players by providing them with working capital and funding for their equipment or facilities. The great thing about increasing investments in the oil and gas sector in Mexico is that for every dollar that is directly invested in the primary segment, several dollars will trickle down in economic activity. SMEs have a great chance of doing business in the sector, which is why the sooner investments get going, the more opportunities will arise.
Q: How easy will it be for SMEs to get financing from Scotiabank Mexico?
A: It comes down to how these SMEs find a niche, as they can then focus on figuring out what the needs are within that niche. Mexico has a very entrepreneurial spirit that will allow businesspeople to quickly spot these opportunities and start new businesses. A lot of resources will go to regions which currently see significant activity, with new areas possibly opening up in the future. This does not create roadblocks for SMEs, but points them toward upcoming opportunities. Additionally, there are plenty of