San Diego-based Sempra Energy has agreed to sell a 20 percent interest in a new business platform to global investment firm KKR for $3.37 billion. The company announced the definitive agreement on April 5 that it would sell a non-controlling interest in Sempra Infrastructure Partners.
This transaction values Sempra Infrastructure Partners at approximately $25.2 billion, including expected asset-related debt at closing of $8.37 billion.
The announcement is part of a series of integrated transactions originally announced in December 2020 that are intended to simplify Sempra Energy’s non-utility infrastructure investments under one self-funding platform, combining the strengths of Sempra LNG, a leading developer of liquefied natural gas (LNG) export infrastructure, and IEnova (Infraestructura Energética Nova, S.A.B de C.V.), one of the largest private energy companies in Mexico and a leading developer and operator of renewables and natural gas infrastructure in that country. This new platform is expected to create scale, unlock portfolio synergies, highlight value and better position the business for growth.
“Over the next decade, we expect the energy markets in North America to continue to grow and become increasingly integrated. Combining our resources with KKR improves our ability to capture new investment opportunities in cleaner forms of energy and the critical infrastructure that stores and transports it,” said Jeffrey W. Martin, chairman and CEO of Sempra Energy. “This transaction also sends a clear signal about the value and expected growth of our infrastructure portfolio.”
KKR will be making the investment through its Global Infrastructure Investors Funds. KKR first established its Global Infrastructure strategy in 2008 and has since been one of the most active infrastructure investors around the world with a team of more than 50 dedicated investment professionals. The firm currently has over $27 billion in infrastructure assets under management and has made over 40 infrastructure investments across a range of sub-sectors and geographies.
“Investing in critical new energy infrastructure creates jobs, delivers reliable energy with fewer emissions and supports North America’s economic recovery,” said Raj Agrawal, KKR partner and global head of infrastructure. “That is why we are excited to partner with Sempra Energy. This infrastructure platform provides a strong foundation to expand cleaner energy resources across the continent. Backed by strong, contractually-supported, long-term cash flows, our investment is also consistent with KKR Infrastructure’s strategy to seek stable and predictable returns for our investors.”
The transaction is expected to be completed by mid-2021, subject to customary closing conditions, including consents from certain third parties and regulators.
Sempra Energy will receive cash proceeds from KKR at the closing of the transaction, subject to certain customary purchase price adjustments, including changes to account for any IEnova shares not tendered in Sempra Energy’s previously announced stock-for-stock exchange offer for the publicly-traded shares of IEnova.
Under the terms of the agreement, KKR will be acquiring its indirect interest in IEnova at $4.13 per share, the price calculated using the proposed exchange ratio announced by Sempra Energy on Dec. 2, 2020, and the closing price of Sempra Energy common stock on April 1, 2021, the last trading day immediately preceding the date of the agreement. KKR will have certain minority rights with respect to Sempra Infrastructure Partners commensurate with the size of its investment.
The new business platform is expected to create increased shareholder value and support the global energy transition by providing an improved platform for innovation and potential new investments in renewables, hydrogen, ammonia, energy storage and carbon sequestration. Sempra Infrastructure Partners owns, among other assets:
- An LNG portfolio consisting of up to 45 million tonnes per annum (Mtpa) of LNG export capacity in development, construction or operation on the North American Pacific and Gulf Coasts;
- A renewable portfolio consisting of up to 4 gigawatts (GW) of renewable energy generation in development, construction or operation in Mexico and related electric transmission infrastructure; and
- A natural gas infrastructure portfolio consisting of distribution companies and certain cross-border and in-country pipelines, including those that export U.S. natural gas to Mexico and supply the Energía Costa Azul LNG facility.
Proceeds from the sale will be used to help fund growth across Sempra Energy’s $32 billion capital program, which is centered on its U.S. utilities, and to further strengthen its balance sheet. The sale is expected to be accretive to earnings.
Also, in December 2020, Sempra Energy announced its intention to launch a stock-for-stock exchange offer for the publicly-traded shares of IEnova, with Sempra Energy’s common shares to be listed on the Mexican stock exchange (Bolsa Mexicana de Valores, S.A.B de C.V.). Sempra Energy intends to commence this exchange offer following approval by the U.S. and Mexican regulatory authorities.
Goldman Sachs & Co. LLC is serving as financial advisor and White & Case LLP is serving as legal advisor to Sempra Energy on this transaction. Credit Suisse Securities (USA) LLC and Mizuho Securities USA LLC are serving as financial advisors and Simpson Thacher & Bartlett LLP and Creel, García-Cuéllar, Aiza y Enríquez, S.C. are serving as legal advisors to KKR.