GIP buys Mexican gas platform from Actis for EM fund

Global Infrastructure Partners has prepped its first investment for its inaugural emerging markets fund with the acquisition of Saavi Energia from Actis.

Saavi is a natural gas platform in Mexico with a power generation capacity of 2.2GW and 65km of natural gas pipelines. A wind farm with 155MW of operational capacity and 108MW under construction was sold in February to IEnova, as it was not considered a core asset.

The deal is understood to be the first asset for GIP’s upcoming Emerging Markets Fund I, its debut vehicle targeting investments in south-east Asia and Latin America. The strategy is led by GIP partner and former World Bank president Jim Yong Kim. However, with the fund yet to be formally launched, it is believed Saavi is being warehoused by GIP and its investors to become the vehicle’s first asset.

Saavi also marks GIP’s initial direct equity investment in the country. The firm is led in Mexico by Javier Okhuysen, who rejoined GIP last August as principal. He was a senior associate at the manager between 2008 and 2011.

While it’s unclear when the fund will reach a first close, a $150 million commitment was approved by the Asian Infrastructure Investment Bank in June, with the AIIB having first reviewed the investment in May 2020. According to the bank, it has a target of $5 billion, focusing on China, India, Indonesia, Malaysia, the Philippines, Vietnam, Brazil, Chile, Colombia, Mexico and Peru.

GIP declined to comment on Saavi’s status in the fund or fundraising itself.

Actis invested in Saavi Energia in April 2018 via its $2.75 billion Actis Energy 4 fund and the business is understood to have increased its EBITDA by more than 30 percent during this period. GIP itself is no stranger to the asset, with its Spectrum credit fund having lent $325 million to the company in September. That loan will now be repaid by GIP. The platform is also backed by a 17-year bond agreed in 2018.

Regulatory hurdles

Mexico’s power sector has been hit by a series of reforms brought forward by the Andrés Manuel López Obrador administration since entering office in December 2018. Further reforms suggested earlier this year will aim to restrict private sector players and bring back the dominance of state-owned utility Pemex to the hydrocarbons market, including natural gas.

However, it is understood the bulk of the Saavi portfolio will not be impacted as the laws mainly affect projects with merchant exposure. According to a report from Fitch Ratings in November, half of Saavi’s 2019 revenues originated from contracts with state-owned enterprises CFE and CENAGAS, 36 percent from commercial and industrial parties and a further 14 percent from merchant sales. These contracts, Fitch noted, include a degree of availability-based payments and were awarded on public international tender processes

However, Adebayo Ogunlesi, chairman and managing partner of GIP indicated a potential shift in the business, noting in a statement that GIP will “pursue growth opportunities in both traditional and renewable energy”.

Actis also remains keen on the sector in Mexico, with Michael Harrington, partner at the emerging markets specialist, reiterating in a statement that it “remains committed to Mexico, where we see a healthy pipeline of investment opportunities to replicate our value creation thesis”.