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$1.79 Billion Sempra Deal

Sempra (NYSE: SRE) announced on Dec. 21 that it plans to sell a noncontrolling, 10% stake in its Sempra Infrastructure Partners business for $1.785 billion. The prospective buyer is the Abu Dhabi Investment Authority, an institution that invests funds on behalf of the government of Abu Dhabi in the United Arab Emirates.

The deal follows a 20% sale to investment firm KKR for $3.37 billion. If the Abu Dhabi deal closes as proposed, Sempra will hold 70% of its infrastructure business.

Sempra Infrastructure Partners is a recently created business entity that includes Sempra’s liquefied natural gas (LNG) export businesses on the Gulf and Pacific coasts. The entity also includes the gas, electrical and refinery infrastructure business in Mexico that formerly went by the name IEnova.

With the announcement, Sempra said the valuation for Sempra Infrastructure Partners increased to $26.5 billion — up from $25.2 billion in April.

 

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Sempra said it will use proceeds from the Abu Dhabi sale to help fund incremental capital expenditures at Sempra’s regulated utilities and repurchase $500 million of the company’s stock. By the fourth quarter of 2021, it said, stock repurchases had reached $300 million.

Analyst Shar Pourreza of Guggenheim Securities LLC wrote that Sempra management “has delivered another accretive transaction with potential value upside, with shareholder friendly capital reinvestment (mix of regulated capex and buyback).” Pourreza gives Sempra stock a buy rating.

Sempra is the parent company of two major Southern California utilities, San Diego Gas & Electric Co. and Southern California Gas.

Growing Businesses

Sempra has a five-year capital improvement plan worth $15 billion at its Texas utility, Oncor Electric Delivery Co. LLC. Oncor’s territory, which includes the Dallas-Fort Worth metro area and a total of 98 counties in the central part of the state, is seeing significant growth.

Pourreza said he sees further development for Sempra’s LNG export business. Long term, the analyst wrote, Sempra may elect to sell or spin off Sempra Infrastructure Partners.

“We could not be more excited about our agreement to partner with the Abu Dhabi Investment Authority,” said Justin Bird, CEO of Sempra Infrastructure, in a company blog post. “Adding another strategic partner to our capital structure improves our position as a leader in the build-out of the new energy systems here in North America to power the world of tomorrow. Today’s announcement is the perfect bookend on this transformational year.”

Sempra announced the deal after the market closed on Dec. 21. Shares, which had an adjusted close of $127.41, opened at $128.01 on Dec. 22 and closed the day’s trading at $129.16. Sempra also announced a dividend of $1.10 per share on Dec. 22.

During the last 52 weeks, Sempra’s stock has traded between a low of $114.66 and a high of $144.93.

 

Definitive Agreement

Sempra and the Abu Dhabi Investment Authority (ADIA) have to take several more steps until the deal is finalized, likely in the summer of 2022. For now, Sempra has entered into a definitive agreement to sell the 10% interest. The deal is subject to regulatory approval as well as customary closing conditions.

“We are excited to add ADIA to the partnership at Sempra Infrastructure,” said Jeff Martin, chairman and CEO of Sempra, in a statement issued by the company. “As an investor with a global footprint, we expect ADIA will help our team build out a growth platform with an increasingly global capability.

“The timing of the transaction is attractive because it allows us to efficiently rotate capital into a growing set of investment opportunities at our utilities and return capital to our owners in the form of share repurchases. This transaction allows us to do both, while also supporting our balance sheet.”

White & Case LLP and Sullivan & Cromwell LLP are serving as legal advisers to Sempra. Milbank LLP and Gonzalez Calvillo S.C. are serving as legal advisers to ADIA.

Abu Dhabi, with a population of approximately 1.5 million, is the capital of the United Arab Emirates. Abu Dhabi is one of six states that banded together to form the UAE in 1971. With a land area roughly the size of South Carolina, the UAE shares land borders with Saudi Arabia and Oman to the west, south and east. Its northern coast fronts the Persian Gulf.

 

The UAE’s population of 9.9 million is mostly immigrant and mostly in cities, according to the World Factbook, an almanac of U.S. government statistics compiled by the CIA. The UAE’s per capita gross domestic product of $67,100 is on par with leading Western European nations. Oil has been an important commodity during the last 60 years. The UAE is the world’s fifth-largest exporter of crude oil. Global finance also drives the UAE’s economy.

Private Investment in Mexico

 

Sempra Infrastructure Partners bills itself as one of the first private companies in Mexico to invest in the energy sector following government reforms that opened the market.

 

The Mexico operation develops, builds and operates infrastructure for gas, electricity and refinery products. It deals in the transportation, storage and distribution of natural gas, ethane and liquefied petroleum. Sempra also generates electricity in Mexico, with wind, solar and gas-powered generation. In addition, it handles refinery products. Sempra has 1,700 employees in Mexico.

Sempra

FOUNDED: 1998

CEO: Jeffrey Martin

HEADQUARTERS: East Village

BUSINESS: Energy services holding company and parent to San Diego Gas & Electric Co.

REVENUE: $11.4 billion in 2020; $10.8 billion in 2019

NET INCOME: $3.76 billion in 2020; $2.06 billion in 2019

STOCK: SRE on the New York Stock Exchange

EMPLOYEES: 4,767

WEBSITE: www.sempra.com

NOTABLE: Sempra Infrastructure Partners says it operates more than 1,500 megawatts of clean energy projects in Mexico

CONTACT: (619) 696-2000

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