Abengoa and GE closed the $632.4 million financing for the Nuevo Pemex cogeneration project on 18 June. The deal is notable as the first power procurement for Mexico’s state oil company, Petroleos Mexicanos, one of the first deals for Mexico’s state development bank, Bonbras, in the private power sector, and is a sign than Pemex might be becoming more open to private sector provision of its infrastructure.

Abengoa, with 60% of the equity either directly or through its contracting arm Abener, and GE Energy Financial Services, with 40%, have already started construction on the project, with Abener as engineering, procurement and construction contractor. NAES, an Itochu subsidiary, will operate the plant, located near Villahermosa, Tabasco state, Mexico.
The plant will be located inside Pemex’ Tabasco refining complex, on a site set aside by Pemex for the project. Pemex decided to procure a new cogeneration plant from an outside developer after deciding that it would provide cheaper power than running its own roughly 20 sub-5MW cogeneration plants or buying power from Mexico’s state power company the Comision Federal de Electricidad (CFE).

The project, developed through the Mexico City office of Pemex Gas and Petroquímica Básica, is the first time that Pemex has procured a power project, and one of the first times it has procured a big ticket item under the Ley de Adquisiciones, Arrendamientos y Servicios del sector Publico (LAASP), which imposes restrictions on the terms that public bodies can offer private bidders.

The financing for the cogeneration plant is the largest in the international market for a Mexican power project since ICA’s La Yesca hydroelectric plant, which raised $910 million from five banks in November 2007. That deal was a build-financing for a plant that would be transferred at completion to the CFE. Because Pemex wanted to outsource the operation of a non-core asset – a cogeneration plant – to a private operator, it opted to use a service contract.

Pemex would offer a 20-year service contract, under which the private operator would receive capacity payments and not assume any fuel risk, Pemex, with plentiful access to gas at the complex, would take the plant’s output, and then either consume it on-site or dispatch it into the CFE’s system. Sales to the CFE at the Villahermosa site would be netted against Pemex’ purchases from the CFE at its other facilities.

The bidding process started in 2007, at a time when the CFE’s programme of independent power projects was entering a fallow period, and road deals were occupying lenders’ attention. Refining the terms of the agreement with the CFE, in particular the interconnection contract, consumed much of 2008. Before the formal process started a number of international banks formed an informal club with the aim of offering an underwritten debt package to any interested bidder.

By October 2008, when bidders were set to emerge, commercial bank appetite for any kind of Mexican project debt had evaporated. Santander, on its own initiative, approached Banobras to see if it would be willing to support the bidders with a commitment to underwrite 100% of the project’s debt requirement. Banobras, despite its limited experience with power projects and as a lender in dollars, agreed, on the condition that the debt was on terms that would normally be acceptable to a commercial lender.

The agreement to support the bid was strictly between Banobras and the bidders, unlike recent road tenders in Mexico, where Banobras support is offered to all bidders as a matter of policy, and where it has a much longer track record. For Banobras, the nearest comparison is the water sector, where it has been active. Santander’s role, as structuring adviser, was often to temper Banobras’ inclinations to be more borrower-friendly. For instance, the financing includes an offshore waterfall account, even though an agreement between two state-owned entities – Pemex and Banobras – would not normally require it.

The debt package is best understood as something equivalent to an A/B loan, with the portion of the debt retained by Banobras being the A loan and the syndicated (or B) piece lacking explicit cover but benefiting from the implied protection of the state-owned lender. The loan has a 6.5-year tenor, a bullet maturity, and pricing starting at 412bp over Libor during construction. After the 36-month construction period, the margin increases to 437bp through months 48 to 60, and 462bp through months 60 to 78. Fees are 325bp. The minimum debt service coverage ratio is 1.35x and average DSCR is 1.45x.

Final bids went in on 13 August 2009, and Abengoa was selected at the end of that month. Documentation started in September, with construction-related questions and the demands of Abengoa’s equity partner, GE Energy Financial Services, consuming much of the negotiating period. GE EFS, for instance, would not commit its equity until debt financing was in place. GE EFS came in on the back of the project’s use of GE 7FA turbines, but lacks the familiarity with the Mexican market of Abengoa and some of the lenders.

The LAASP provisions did not provide many obstacles. The termination schedules, and method of calculating the termination payment, are clear to lenders. The bookrunners were selected on the basis of their willingness to provide Abengoa with a corporate bridge loan – $20 million each – which allowed it to start construction in late 2009. Once the plant is up and running, Nuevo Pemex will probably be a strong candidate for a bond refinancing.

Pemex, despite lingering concerns about its ability to maintain production levels, and exploit its deepwater reserves, remains a popular credit with lenders and investors. It recently issued $2 billion in 10.5-year bonds, at a spread of 250bp over the nearest US treasury, through Deutsche, Goldman Sachs, and HSBC.

Abengoa Cogeneración Tabasco S. de R.L.de C.V.
Status: Signed 18 June, funded 23 June
Size: $632.4 million
Location: Villahermosa, Tabasco state, Mexico
Description: 300 million, 550 tonnes per hour steam plant with 20-year Pemex service contract
Sponsors: Abengoa (60%), GE Energy Financial Services (40%)
Equity: $180 million
Debt: $460.1 million
Underwriter: Banobras
Financial adviser: Santander
Bookrunners: Santander, HSBC, BES, Credit Agricole
Lead arrangers: Scotia Capital, La Caixa, EDC
Lender legal counsel: Mayer Brown (international) and Galicia Abogados (local)
Borrower legal counsel: Shearman & Sterling (international) and Creel, Garcia-Cuellar, Aiza y Enriquez (local)
Independent engineer: RW Beck