The opportunity for the funding was apparent, even if the structure was not. At the time of the offering in July, Pinfra’s stock traded at close to 20-times Ebitda, presenting a chance to sell equity more cheaply than issuing debt and use the proceeds to invest in future growth.
Underlying that premium valuation were expectations that Pinfra would benefit from historic reforms to open up the telecoms and energy sectors. The company has highways, ports and airports that will grow in lock-step with a revitalised economy.
The fact that it was one of the few pure-play Mexican infrastructure companies increased the appeal – so much so, in fact, that controlling shareholders were concerned that selling stock could put the company in play.
“There was more spending on infrastructure, but [the owners] did not want to be diluted,” said Santiago Gilfond, a managing director at Credit Suisse, which acted as lead along with Itau BBA, JP Morgan and GBM. “We went back and forth, and ultimately had the confidence to launch an L share – a new class of stock.”
The L shares offered investors limited voting rights, a once-popular structure that fell out of favour decades ago due to the poor treatment of minority shareholders by Latin American companies. Mexican regulators were circumspect with a number of investor protections embedded in law.
“The thing that protected minority investors in the case of Pinfra is that there were mandatory tag-along rights – L shares have the same economic rights,” said Fecundo Vasquez, a managing director at Itau BBA. “We were very careful. That is something written in the law.”
There was, however, a cost. The all-primary raise saw 42.9m L shares placed at Ps172, a 6.1% discount to the Ps183.24 A share last sale. Nevertheless, strong investor demand in the aftermarket was evident when the underwriters exercised the greenshoe of 6.5m shares.
Giving investors comfort on corporate governance was central to the success. In addition to tag-along rights, the L shares flip into voting A shares on any equity raising larger than 25% of the outstanding, as is required under Mexican law.
Pinfra did receive a lift from the equity infusion, as the A shares rallied on the deal launch to set the discount on the L sale at just 0.2% from filing in early July.
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