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Sempra to sell stake in new infrastructure unit to fund North American LNG growth

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Sempra to sell stake in new infrastructure unit to fund North American LNG growth

Highlights

Whether unit may eventually be spun off unclear

Company offers to acquire outstanding IEnova shares

Houston — Sempra Energy will help fund its North American LNG export expansion plans by selling a stake in a new unit that includes some of its natural gas and renewables assets, the company said Dec. 2.

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The company did not specify the exact portion of the new unit that it will sell – only that it will be a non-controlling stake – or say how much money it expects to fetch. Whether Sempra might ultimately spin off the new unit also was unclear. Senior officials have scheduled a conference call with investors for Dec. 4.

Amid a challenging environment for adding new liquefaction capacity, especially in the US where banks or investment partners have traditionally been relied upon for the billions of dollars in startup capital, developers are increasingly looking for creative ways to pay for construction. Sempra said last month that it was considering financing and investment options that it did not specify at the time.

In addition to raising money that it can use for its proposed expansion of Cameron LNG in Louisiana and construction of Port Arthur LNG in Texas and for its recently sanctioned Energia Costa Azul export project in Mexico, by packaging gas and renewables assets together in the new unit, Sempra may be trying to appeal better to European investors that have been shying away from new commitments in US shale. To Sempra and other US infrastructure companies, gas offers a key bridge to the energy transition that favors wind, solar and hydro over fossil fuels.

"The mixing of gas and renewables is a theme we are going to see for the foreseeable future," Michael Webber, managing partner of investment research firm Webber Research & Advisory, said in an interview. "It's an early step in a longer process."

Sempra's new business unit, Sempra Infrastructure Partners, will focus on the development and construction of North American LNG export infrastructure, natural gas infrastructure and renewable energy generation.

The unit will include Sempra's LNG portfolio, which at full buildout would consist of approximately 45 million mt/year of capacity. The unit also will encompass certain natural gas distribution assets and cross-border and in-country pipelines, including those that export US natural gas to Mexico and supply the Energia Costa Azul facility. Final investment decisions have not yet been made for expanding Cameron LNG beyond its current three trains or building Port Arthur LNG.

About 4 GW of renewable energy generation in development, construction or operation in Mexico and related electric transmission infrastructure will be put under the Sempra Infrastructure Partners umbrella as well.

The company said it has "initiated a process to sell a non-controlling interest in Sempra Infrastructure Partners to fund growth and highlight the value of the overall portfolio." The sale is expected by the end of the first quarter of 2021. A spokeswoman declined to elaborate beyond the statement.

IEnova purchase

In a related move, Sempra said it wants to acquire, through a stock for stock exchange, all of the outstanding shares of its Mexican IEnova subsidiary that it doesn't already own. It is offering a fixed exchange ratio that it says implies a price of 82 Mexican pesos per IEnova ordinary share, representing premiums of 11.6% and 22.6% over IEnova's 30-day and 90-day volume-weighted average stock prices, respectively.

IEnova is the operator of Energia Costa Azul on Mexico's Pacific Coast, where liquefaction capabilities are being added to the existing regasification facility.

Sempra sees the IEnova move as a nod to Mexican investors about the importance of the country in its natural gas and LNG expansion plans.