Global investment firm KKR is buying a stake in a Sempra Energy business unit that manages liquefied natural gas (LNG) projects in Mexico and along the U.S. Gulf Coast as it anticipates growth in North American energy infrastructure.

LNG exports

Under the terms of the deal announced Monday, KKR will pay  $3.37 billion for a 20% non-controlling interest in the Sempra Infrastructure Partners subsidiary.

“Over the next decade, we expect the energy markets in North America to continue to grow and become increasingly integrated,” Sempra CEO Jeffrey Martin said Monday. “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. This transaction also sends a clear signal about the value and expected growth of our infrastructure portfolio.”

Sempra Infrastructure Partners was formed in December. It combined the Sempra LNG unit with Sempra’s Infraestructura Energética Nova (IEnova) subsidiary in Mexico. At the time, Sempra said it was looking to sell a minority stake in the business.

In Mexico, Sempra LNG and IEnova are jointly developing the Energia Costa Azul (ECA) export project in Baja California, which was the only LNG development in North America to be sanctioned last year. The first phase, with capacity of 2.5 million metric tons/year (mmty), is expected to come online in 2024.

ECA would allow U.S. gas exports bound for Asia to bypass the Panama Canal, cutting shipping time and costs. 

The partnership also owns gas infrastructure, including pipelines to send U.S. feed gas to ECA, and a Mexican renewable energy portfolio of about 4 GW.

IEnova also has developed several other natural gas pipelines in Mexico anchored by state-owned power utility Comisión Federal de Electricidad (CFE) to ensure supply of U.S. gas for CFE’s growing fleet of gas-fired power plants.

Sempra said the KKR transaction is expected to close by mid-2021, subject to customary closing conditions.

Meanwhile, KKR head of global infrastructure Raj Agrawal said the business unit provides a “strong foundation” to expand natural gas and renewables across North America.

San Diego-based Sempra said the deal values the infrastructure subsidiary at about $25.2 billion including debt of $8.37 billion. Closing is expected by mid-year.

The infrastructure unit owns a 45 million metric tons/year LNG portfolio, which includes the operational 15 mmty Cameron LNG facility in Louisiana, which may be expanded. It is also developing the proposed 13.5 mmty Port Arthur LNG terminal southeast of Houston in partnership with an affiliate of Saudi Arabian Oil Co., aka Saudi Aramco, which may be sanctioned this year. 

Sempra said proceeds from the sale would be used to “help fund growth” across its $32 billion capital program, which is focused on its U.S. utilities, and to “further strengthen” its balance sheet. The company said last month that it would target nearly 90% of capital investments this year in its three major utilities operating in California and Texas.

KKR would make the investment through its infrastructure fund, which currently holds $27 billion in assets. The firm’s recent investments include the Coastal GasLink pipeline project to supply LNG Canada in British Columbia with feed gas. Past investments also include Williams’ Rocky Mountain Midstream system and privately held Permian player Spur Energy Partners LLC.

When Sempra formed the partnership in December, it also disclosed plans to launch a stock-for-stock exchange offer for the remaining shares of IEnova. Sempra anticipated in December it would finish the exchange by the end of March. On Monday, however, Sempra said it was still waiting for government clearance to begin the process.

Under the terms of the offer, Sempra would exchange one common share for an IEnova share at an exchange ratio of 0.0313. Sempra intends to list its exchange shares on Mexican stock exchange Bolsa Mexicana de Valores SAB de CV. The offer has an implied price of 82 Mexican pesos, or $4.08/IEnova share.