CDPQ, CPPIB and OTPP Sign Big Infrastructure Deals
A 25% stake in Sydney Metro is a great long-term investment. Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ, and his team should be congratulated for this investment. Not only does it fit perfectly with their strategy to invest in high-quality infrastructure assets, they also have the right partners on this deal who have the required operational expertise.Caisse de dépôt et placement du Québec (CDPQ), a global institutional investor, announces today the acquisition of a 24.9% stake in the public-private partnership (PPP) contract for the trains, systems, operations and maintenance of Sydney Metro, Australia’s biggest public transport project, which includes both the North West and City & Southwest lines. The total value of the transaction is AUD 167 million (CAD 150 million). Other investors include MTR Corporation Limited, Marubeni Corporation, Plenary Group and CIMIC Group Limited.
- Acquisition of a 24.9% equity stake in the extended Sydney Metro trains, systems, operations and maintenance public-private partnership (PPP) contract
- Total transaction value of AUD 167 million (CAD 150 million)
- Strategic partnership with local and international investors combining operational and financial expertise
The Metro North West Line opened in May 2019 with 13 metro stations in Sydney’s North West. It is being extended into the Sydney city centre and beyond to Bankstown by 2024, when Sydney will have 31 metro stations and a stand-alone 66-km metro railway.
“The Sydney Metro is a transformative project for the city and for thousands of people who look to public transport for fast and efficient travel each day. This transit system will expand sustainable mobility in the region and contribute to the transition toward a low-carbon economy by compounding the benefits of mass transit, electrification and energy from renewable sources,” said Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure, CDPQ. “This investment is perfectly aligned with our strategy to invest in high-quality infrastructure assets, alongside partners with a deep understanding of the market and vast operational expertise.”
CDPQ’s strong presence in Australia
In addition to its investment in Sydney Metro, CDPQ acquired earlier this year a minority stake in Healthscope, a private hospital operator. In 2016, CDPQ collaborated with the founders of Greenstone to acquire a 44% interest in this leading Australian insurance distributor. In infrastructure, CDPQ is also a shareholder and long-term partner of Plenary Group, having invested in several Plenary-originated Australian projects since 2012. CDPQ also holds a 22.5% interest in TransGrid, the electricity transmission network of the State of New South Wales and the Australian Capital Territory, and 26.7% of the Port of Brisbane.
Infrastructure investments in Australia are just as popular as the ones in Britain. Why? Rule of law. Australia has a similar legal system to Canada's and in terms of currencies, the Aussie is very similar to the Canadian loonie (moves along with commodity prices and global economic recovery).
Investing in Sydney Metro allows the Caisse to generate steady cash flows that benefit from Australia's economic growth and that are indexed to inflation as user rates are regulated and are increased to reflect inflation.
In another major infrastructure deal that was announced last week, CPPIB, OTPP and IDEAL expanded their Mexican infrastructure partnership:
Canada Pension Plan Investment Board (“CPPIB”) and Ontario Teachers’ Pension Plan (“Ontario Teachers’”) have entered into a definitive agreement to acquire a stake in Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V. (BMV:IDEAL B-1, “IDEAL”) to further invest in key infrastructure projects throughout Mexico.Just like CDPQ's Emmanuel Jaclot, CPPIB's Scott Lawrence and OTPP's Dale Burgess are top-notch infrastructure investors. Dale is right, IDEAL is a leading Mexican infrastructure platform and provides Ontario Teachers’ new capabilities to further invest in projects in the region.
IDEAL’s portfolio includes 18 infrastructure concessions in Mexico (13 toll roads, three logistics terminals and two wastewater treatment plants), as well as an electronic toll collection service business and an operations business. IDEAL, Ontario Teachers’ and CPPIB are already partners in the Arco Norte and Pacifico Sur toll roads.
Under the terms of the agreement, CPPIB and Ontario Teachers’ have committed to launch a tender offer in the Mexican stock exchange for shares in IDEAL, subject to the fulfillment of certain conditions, at MXN$43.96 per share. If successful, CPPIB will acquire a 23.7% interest in IDEAL alongside a 16.3% stake by Ontario Teachers’. The current majority owners of IDEAL’s outstanding shares will maintain a majority shareholding in the company.
As part of the arrangement, an infrastructure investment trust, known locally in Mexico as a FIBRA-E (Fideicomiso de Inversión en Energía e Infraestructura), will be formed by a subsidiary of IDEAL, and subsequently funded by certain shareholders of IDEAL, CPPIB and Ontario Teachers’. The FIBRA-E structure was introduced in Mexico in 2015 to encourage private-sector investment in energy and infrastructure projects.
The FIBRA-E will be managed by a subsidiary of IDEAL and purchase partial stakes in four of IDEAL’s toll roads: Arco Norte, Chamapa - La Venta, Toluca Bypass and Tijuana - Tecate. After the FIBRA-E is formed, a secondary offering led by CPPIB and Ontario Teachers’ will occur, which will reduce their ownership to small minority positions while also introducing other investors.
“This investment in IDEAL provides CPPIB with the valued opportunity to access a diversified portfolio of assets with stable cash flows, while also providing the opportunity for future growth through development opportunities in Mexico’s infrastructure sector,” said Scott Lawrence, Managing Director, Head of Infrastructure, CPPIB. “Broadening our partnership with Ontario Teachers’ and IDEAL further strengthens our commitment to long-term ownership.”
“Following our investments in Arco Norte and Pacifico Sur, this investment in IDEAL represents an important addition to our infrastructure portfolio. IDEAL is a leading Mexican infrastructure platform and provides Ontario Teachers’ new capabilities to further invest in projects in the region,” said Dale Burgess, Senior Managing Director, Infrastructure and Natural Resources, Ontario Teachers’. “We are excited to deepen our partnership with IDEAL and CPPIB to continue to invest in core infrastructure in Mexico.”
The transaction is subject to customary closing conditions, including by certain competition and regulatory authorities.
ABOUT IDEAL
IDEAL is an independent publicly traded company listed on the Mexican Stock Exchange (Ticker: IDEALB1.MX). IDEAL engages in the development, promotion, operation and administration of infrastructure projects in Mexico and Latin America. IDEAL is one of the largest infrastructure companies in Latin America, with 18 infrastructure concessions in different sectors, including toll roads, water, energy, social infrastructure and logistics terminals.
And Scott Lawrence explains it in the simplest terms: "IDEAL provides CPPIB with the valued opportunity to access a diversified portfolio of assets with stable cash flows, while also providing the opportunity for future growth through development opportunities in Mexico’s infrastructure sector."
Got that? Infrastructure investments are meant to be extremely boring and safe investments which provide pensions with stable cash flows over the long run, much like real estate provides rents in long-term leases.
And just like real estate leases are linked to inflation, toll roads or metro lines also have user fees which are linked to inflation.
Mexico is also similar to Canada and Australia in terms of its economy and currency (peso moves a lot with commodity prices and global trade) and it has the added advantage of having a fairly young population which is why Canadian pensions are attracted to it.
By the way, shares of IDEAL skyrocketed after this deal, making Carlos Slim, already Latin America's wealthiest man, a lot wealthier:
A concessionaire owned by Mexican mogul Carlos Slim is joining forces with two Canadian pension plans to invest in infrastructure projects.If you're going to invest big in Mexico, it's probably best to have Carlos Slim's conglomerate as a trusted partner.
Mexican holding company IDEAL, the highway operator unit of Slim conglomerate Grupo Carso, signed a binding agreement with the Canada Pension Plan Investment Board (CPPIB) and the Ontario Teachers’ Pension Plan to sell stakes in four highway concessions.
The Canadian funds will also buy a minority share of the infrastructure firm.
IDEAL's shares on Mexico’s stock exchange (BMV) jumped almost 50% on Friday after the announcement to their highest since 2017.
What’s the deal?
The stakes in the four highways will be offered via an infrastructure and energy investment trust known in Mexico as Fibra E, which will be listed on the BMV.
The Fibra Es were introduced four years ago to promote private sector investment in energy and infrastructure projects.
If everything goes according to plan, the Canadian funds will initially acquire 18.7% of the four toll roads before they are offered to other investors via the Fibra E.
The highways are Arco Norte in Mexico City, Chapala-La Venta in Jalisco state, Libramiento Toluca in Mexico state and the Tijuana-Mexicali route in Baja California Norte state.
According to IDEAL, revenues from the four highways totaled 5.6bn pesos (US$290mn) last year, with Arco Norte bringing in the most at 3.6bn pesos.
However, CPPIB and Ontario Teachers’ must first launch a public tender offer on the BMV to acquire 40% of IDEAL's shares at 43.96 pesos each.
CPPIB and Ontario Teachers will then own 23.7% and 16.3%, respectively, of the Mexican firm.
CPPIB said in a press release it intends to use part of what is brought in from the concessions for other infrastructure projects.
“This investment in IDEAL provides CPPIB with the valued opportunity to access a diversified portfolio of assets with stable cash flows, while also providing the opportunity for future growth through development opportunities in Mexico’s infrastructure sector,” Scott Lawrence, managing director and head of infrastructure at CPPIB, said in a statement. “Broadening our partnership with Ontario Teachers’ and IDEAL further strengthens our commitment to long-term ownership.”
IDEAL’s portfolio includes 18 infrastructure concessions in Mexico – 13 toll roads, three logistics terminals and two wastewater treatment plants, as well as an electronic toll collection service business and an operations business.
The three entities are already partners in the Arco Norte and Pacífico Sur toll roads.
Below, Bibop Gresta (Hyperloop TT) and Emmanuel Jaclot (CDPQ), keynote speakers of Infra Latin America GRI 2019, talk about the experience of participating in the conference organized by GRI Club Infra.
Last year, Jaclot also took part in a panel discussion at the Milken Institute conference on the evolution of ESG and asset management (fast forward to minute 10 in second clip).
Third, I embedded a clip on Sydney Metro opening in the first half of 2019 – 13 metro stations and Australia’s first fully-automated trains. In 2024, it will be extended from the north west, under Sydney Harbour, into the Sydney city centre and beyond to the south west – altogether, 31 metro stations and a new 66km railway.
Watch the clip below, great investment for the Caisse. I wish our metro in Montreal was just as good and accessible.
Lastly, an older interview with Mexican billionaire Carlos Slim at the 2013 Milken Institute conference. In this interview, Slim discusses his early life and successful businesses and investments as well as philanthropy. Like I said above, if you're investing in Mexican infrastructure, it's wise to have Carlos Slim as your trusted partner.
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