The financing vehicle that drove the U.S. midstream buildout during the shale boom has been reinvented, this time with a south-of-the-border flair.

Mexico’s new Fibra E was designed with the MLP in mind, and while no partnerships have emerged just yet, an official from that country’s finance ministry confirmed that several are in the works and primed to push a much-needed infrastructure renaissance. It is also seen as a tool to accomplish the divestiture of midstream assets from national oil company Pemex.

“There are several in the pipeline, some coming from the public sector and some from the private sector,” Narciso Campos Cuevas, Mexico’s assistant secretary for banking, securities and savings, told attendees at the recent FT Energy Infrastructure Forum in Houston, hosted by the Financial Times. Campos Cuevas added that confidentiality reasons prevented him from discussing specifics.

Wood Mackenzie forecasts Mexico’s natural gas demand to grow by 74% in the next 15 years, with imports from the U.S. increasing by 200%. The Times reported that Pemex and national power utility CFE are hoping to use the Fibra E to divest assets and generate a total of $1.8 billion this year.

Developed to encourage foreign investment and spur the country’s energy reform, the Fibra E can be used not only as a structure for oil and gas, petrochemical and power generation but for those entities’ supporting infrastructure.

“This adds a lot of complexity to the instrument; it is a very broad scope,” Campos Cuevas said. “We include roads, railroads, bridges, urban and interurban transport, docks, airports and water infrastructure—not only drinking water but also sewage and other types of water infrastructure.”

The word itself is an acronym: Fideicomiso de Infraestructura y Bienes Raíces, which translates as trust infrastructure and real estate, patterned after real estate investment trusts in the U.S. Fibra E specifically addresses the issues associated with investing in energy companies, like the MLPs that are ubiquitous in the midstream sector.

Among the elements of successful MLPs that the Fibra E seeks to replicate:

  • Steady cash flow distributions;
  • Growth story, possibly related to dropdowns from a sponsor;
  • Strong sponsor, known in the U.S. as a general partner;
  • Explicit payout policy;
  • Healthy capital structure and portfolio diversity; and
  • Solid corporate governance.

What makes Fibra E a groundbreaking instrument is that it requires companies to be transparent for tax purposes for the first time under Mexican law, a critical component to attract foreign investors. Though, Campos Cuevas also stressed the tax advantages for investors.

“One of the important advantages is that it enhances valuation because valuation becomes more related to cash flows instead of common metrics like price, earnings and all of the other balance sheet items,” he said. Investors also benefit because there is no capital gains tax involved.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.