IPTs: low 9%
FV: 9% Area
• Independent Mexican electric generation holding company issuing an inaugural 10nc5 benchmark. The Holdco is supported by two electric generation subsidiaries Cometa Energia (COMENG; Baa3/-/BBB-) and Tierra Mojada (TIEMOD; Baa3/BBB/BBB-) that are its main source of income and that have purchase power agreements primarily with the government owned electric company Comision Federal de Electricidad (CFELEC; Baa2neg/BBB/BBB-), Centro Nacional de Control del Gas Natural (CENEGAS; Unrated) and the Mexican electricity market. Consider also Saavi’s high leverage. Moody’s cites credit metrics as aligning with a ‘B’ rating for unregulated utilities. Fitch expects consolidated leverage to remain below 5.85x and sees 9.6x leverage at the Holdco level for 2025.
• A good comp is Spanish based company AI Candelaria (AICNRA; -/B+/BB) which has a similar corporate structure as a highly leveraged holdco dependent on regulated operating company cashflows. AI Candelaria owns a 27% interest in a regulated Colombia oil pipeline Oleoducto Central S.A. (OCENSA; Ba1/BB+neg/BB+) that is majority owned by Colombian government-controlled oil company Ecopetrol (Ba1/BB+neg/BB+). AICNRA 2033 bonds with an average life of 6.1 years are quoted at 9.2%. Operating subsidiaries COMENG and TIEMOD have 6.25- and 7.8-year average life bonds quoted 6.5-7% yield so you are getting substantial compensation for the structural subordination. Petroleos Mexicanos (PEMEX; B3neg/BBB/B+) is the highly levered Mexican government owned energy company with comparable maturity bonds quoted around 10%.
• The Mexican government recently reclassified the status of CFE as a public state enterprise that will serve the public interest. Private/Public partnerships will be allowed but CFE will always have at least a 54% stake in any venture and in general will be given preferential treatment. Any exposure to the Mexican electricity market should consider political risk as an investment consideration.
