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Fed OKs Sempra, Royal Bank of Scotland Joint Venture

Sempra Energy and Royal Bank of Scotland (RBS) late Thursday said they received final regulatory approval from the U.S. Federal Reserve Bank to complete the formation of their commodities/marketing joint venture, RBS Sempra Commodities.

The announcement followed Sempra's annual analysts meeting on Wall Street at which its CEO hinted the Fed approval was imminent (see Daily GPI, March 28).

With less risk and more upside potential in the energy and metals trading in which it has thrived for a number of years, Sempra can use the joint venture to remain relatively aloof of the global credit crunch now plaguing the financial sector, CEO Don Felsinger said at the analysts meeting. The Fed approved the two firms merging their physical trading of commodities -- the last remaining approval needed. The deal is expected to close Tuesday (April 1).

The joint venture received approvals last year from the UK Financial Services Authority and the Federal Energy Regulatory Commission (FERC).

RBS Sempra Commodities LLP will purchase Sempra Commodities, which at times in the past two or three years has contributed as much as half of Sempra's profits. During the next five years, trading's proportional profit contribution will drop some, Felsinger said, as the company diversifies more and some of its major gas infrastructure projects reach full commercialization. In 2012, he estimated Sempra profits from trading will represent a little more than one-third of its overall net income.

As outlined last July when the deal was announced, the Sempra-RBS trading joint venture was valued at $2.65 billion with Royal Bank of Scotland assuming the day-to-day operations and capitalization of the San Diego-based energy company's trading operations (see Daily GPI, July 11, 2007). Sempra officials described the transaction as the best of both worlds, allowing Sempra to use RBS's financial heft to realize upside growth while at the same time lowering its risk.

At the time Felsinger described Sempra's prospects for greater trading profits with lower risk as being akin to "clipping coupons" for well heeled bondholders.

Now that the deal is about to close, a key for Sempra is the fact that RBS is the world's leading project finance bank, and it is the leading lender to the renewable energy sector, an area that Sempra intends to expand into in a big way in the years ahead, according to what senior company officials told analysts in New York City Thursday.

Sempra Commodities was built up over the past 10 years to become an international marketing and trading company combining financial risk management with physical expertise in natural gas, power, petroleum and base metals, as well as natural gas liquids, coal, emissions credits and ethanol.

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