Citibanamex is the Mexican subsidiary of Citigroup, an American multinational investment banking and financial services corporation. It has about 200 million customer accounts and is present in 160 countries. Mexico Energy Review 2019 sat down with Salomón Amkie, Vice President, Head of Power and Utilities to get his take on the ever-evolving energy landscape.
Q: What is Citibanamex’s primary contribution to Mexico’s energy transition?
A: Like any financial institution, Citibanamex is trying to push the envelope on creative financial structures. Financing is a key component for any developer or project sponsor to complete a power generation project. It is a very interesting time for renewable energy in Mexico and the critical aspects of bringing in international investors, creating more access to capital markets, both internationally and locally, and structuring financing solutions with extra creativity are the aspects in which Citibanamex can truly excel.
Q: In what specific areas is Citibanamex emphasizing to attract capital to Mexico’s renewable energy projects?
A: We are increasingly focusing on the US private placements sector. It is a niche within US capital markets but it allows more flexibility in financial structuring than a typical 144A issuance. Aside from closing three transactions related to large energy-projects, we also put together a large USPP investor seminar at our Banamex corporate offices in Mexico City where we brought 12 large pension funds, mutual funds and other institutional investors we interact with in the US. We organized full sessions in which key regulators, government officials and select clients in Mexico could interact with these investors. We also organize on an ongoing basis meetings in New York in a similar fashion to engage with potential investors.
Q: What more is needed to develop full-merchant projects and bilateral PPAs in parallel to long-term auction projects?
A: Merchant projects and bilateral PPAs are a market reaction to the aggressive results showcased in the longterm electricity auctions. A significant contingent of more stable and multinational sponsors that have certain constraints on capital structure were not thrilled or not even able to participate in the long-term auctions because of the low pricing obtained in the coverage contracts. These low levels made certain assumptions about merchant revenues that not everyone was willing to accept, including financial institutions. We believe the emergence of bilateral PPAs to be incredibly positive. For one, it means that more developers are pushing the commercial side of their business and not just relying on CFE. Second, a pool of industrial players willing to sign these PPAs is steadily growing, meaning they are getting more involved so they can enter into commercial conversations with project sponsors. It is a rising trend that will consolidate as we move forward under the new administration.
Q: What financial schemes are best suited to bolster distributed generation in Mexico?
A: Looking at mature distributed generation markets such as the US, the usual financing structure involves assembling a pool of distributed generation PPAs or leases that comply with a specific set of criteria in terms of creditworthiness. If it is residential, for instance, a solid credit score is a must, together with location and home values. Banks look at it as financing a credit card portfolio rather than a pool of mortgages in that it is considered a retail risk rather than a performance risk. Ideally, we would like to see this evolving in a sense that by 2021 we can also open the door of capital markets to finance pools of distributed generation projects.
There are two main challenges for this to occur in Mexico. First, there is less transparency compared to the US related to creditworthiness. Mexico’s credit bureau is a rather new practice. Second, lack of capital market access is an issue as Mexico’s pool of distributed generation projects would be denominated in local currency and capital markets need to be available for this particular modality. In other words, Mexico’s local pension funds would need to meet certain rating criteria and thresholds to be able to invest in these distributed generation pools. There is a tremendous amount of solar resource in Mexico for a distributed generation boom in the near future but it is dependent on these two specific conditions being met, especially considering that distributed generation will be primarily equity-driven as it consolidates and matures.
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Salomon Amkie was a speaker at Mexico Energy Forum 2019. To find out what he spoke about and the other insights from business leaders, go to our highlights.