Last week, PFR reported that Mexican developer Fermaca had obtained an approximately $600 million 3.5-year loan at 187.5 basis points over LIBOR for the first two years, to finance the El Encino-La Laguna gas pipeline (PFR 7/29).
The new 289-mile project will connect to Fermaca’s existing Tarahumara pipeline, which in turn connects to Kinder Morgan’s network in the southern U.S., putting the Mexico City-based developer and operator in a strong strategic position.
This week, the company’s cfo Sergio Camacho spoke to Richard Metcalf, editor of PFR, about the recent financing and Fermaca’s long-term financing plans for the project.
After confirming the details of the loan, specifying $584 million as the principal amount, Camacho added that the company had also entered into interest rate swap agreements with the lenders, to hedge the variable rate to fixed—although he would not comment on what the effective fixed rate would be.
PFR: How would you describe the bank finance market for projects such as this one in Mexico at the moment?
CAMACHO: [Mexican infrastructure is] a growing market, and this is in line with the growing market in this type of financing structure. As you know, the Mexican energy reform along with the Comisión Federal de Electricidad’s pipeline for infrastructure for the coming years is very aggressive, and we have seen improved conditions in the project finance market, with banks being very aggressive, in a positive way.
Also, there are more banks that are starting to see it as a ‘full service’ loan, and that means that there are banks that are willing to provide project finance and then continue the financing, switching to a bank loan of up to 20 years or so. So overall, the market is improving.
PFR: The contract you have to operate the project is 25 years, and you have obtained a 3.5 year loan, so will long-term financing be required?
CAMACHO: It will be required. Perhaps one year in advance of the maturity of that loan we will start looking at options, between a long-term bank loan or a 144A bond.
PFR: You have previously issued bonds for the Tarahumara pipeline.
CAMACHO: We know the path for long-term financing.
PFR: So when you are comparing the bank loan market and the bond market, will you be considering just the cost of funding or are there other considerations?
CAMACHO: Basically it’s going to be the cost of funding.
PFR: Do you have other projects that are going to require financing in the near future?
CAMACHO: Hopefully yes. If you look at the CFE pipeline of bids for the coming months, it’s very aggressive, and obviously Fermaca is going to be participating in those bids.
Camacho joined Fermaca in February this year, after leaving Kimberly-Clark de Mexico, where he had been corporate treasurer and investor relations officer for eight years.
