The flotation of Mexican gas pipeline operator Esentia Energy has proven a disappointment for Partners Group Private Equity (PEY) which has had to write down the value of what was its 11th biggest holding.
The £708m London-listed fund invests in the private equity funds of Switzerland’s Partners Group, the majority owner of Esentia, which cut the price of its initial public offer (IPO) on the Mexican Stock Exchange last week.
The shares were priced at 45 pesos ($2.45) below the previous range of $2.70 to $3.90 per share. Around 41% of the shares were allocated in Mexico and 59% internationally, making it one of the first IPOs in Mexico with an international distribution since 2018 and the first flotation of an energy infrastructure company in Latin America for four years.
Partners Group, which owns 70% of Esentia, said the price reflected “adjustments due to short-term market dynamics and liquidity considerations, rather than any change in Esentia’s fundamentals”.
As a result, PEY received €3.8m in cash from a partial sale of Esentia shares with the remaining holding valued at €10.6m. The €14.4m total compares to a €26m valuation of its stake at 31 September.
Partners Group and PEY are locked into the holding for one year. PEY has previously received €3.2m from Esentia taking total distributions to €7m.
Partners Group invested in Esentia in 2014 and since then has seen it grow capacity by six times and expand its pipeline network from 508km in to over 2,000km. It said Esentia’s core business was underpinned by a portfolio of long-term, “take-or-pay” contracts of between 20 to 35 years with most of the revenues in US dollars paid by the Comisión Federal de Electricidad, the country’s state-owned energy utility, and a range of blue-chip private clients. It benefited from strong demand for natural gas due to Mexico’s rising electricity needs and a shift away from oil and coal.
Nevertheless, this is a setback for PEY which recently launched a stock buyback programme to tackle its 25% share price discount.
However, there was better news as the company also unveiled an 11% uplift on the sale of Convex Group, a specialty property and casualty insurer. A stake that was worth €20m at 30 September, its 18th largest, had risen to €23m.
Our view
James Carthew, head of investment company research at QuotedData, said: “Partners Group Private Equity announcing two exits in a day provides further welcome evidence that the pace of these is picking up. However, the big (55%) write down in the value of Esentia Energy following its IPO serves to illustrate that – despite overwhelming evidence of private equity trusts routinely undervaluing their investments – there are exceptions to the rule. PEY has retained most of its position and is locked into it for about a year. It will be interesting to see if the shares re-rate towards PEY’s earlier valuation.”
