Good morning, ladies and gentlemen. We would like to offer a warm welcome to all of you who have joined us today for this webcast on the Mexico deal that was signed and announced yesterday. Let's hope it will be a good start to the Easter holiday for everybody. We have with us today Mr. Pepe Sainz, CFO, and Mr. David Mesonero, Global Head of Corporate Development, both of whom are very well known to all of you. David, by the way, is slightly far away from here in Madrid. I would like to stress that we will only accept questions submitted via the phone line. Please ask your question only by dialing the numbers you have received included in the call for this webcast. If possible, please do not exceed three questions per participant.
Hoping that this presentation will be useful and informative for all of you, now, without further ado, I would like to give the floor to Mr. Pepe Sainz. Thank you very much again. Please, Pepe.
Hello. Good morning to all of you. Thank you for attending this brief call. Thank you, Ignacio. Let me do a brief summary of the deal. Basically, Iberdrola is selling in Mexico the plants that have a PPA with CFE, known as PS. 7,800 MW out of the 8,436 are assets of this kind that I have to remember everybody that they are under government concession, and they will start expiring from 2027 onwards. Also, let me stress that Iberdrola keeps its presence in Mexico, basically through the assets linked to its private industrial customers and the PPAs associated with them.
1,200 MW of CCGTs, 1,059 MW of renewables, and more than 200 MW of cogeneration are still part of the Iberdrola group in Mexico. In addition to this, we have a pipeline of 6 GW of renewable developments. In general terms, we maintain approximately 45% of the operating profit. Iberdrola maintains its commitment to Mexico as we expect to grow in renewables and in our supply business with a much better relationship with the Mexican government. At the same time, we are improving. We are improving our financial strength. We have done a very important step forward in an asset rotation, although we will continue to look for opportunities to create value for our shareholders.
Also, this has a very important element in our ESG strategy, and this will accelerate our 2040 net-zero ambitions. I think that this transaction is a very good transaction for both parties, for Mexican government strategic objectives, and for us. Let me now give the word to David Mesonero that will give you more details on the transaction. Thank you. I will be back later after David comments.
Thanks, Pepe. Good morning to all of you, thanks for being here with us. Sorry for the potential bad connections, I am still outside of the office. Let me explain to you, as Pepe was mentioning, the key terms of this transformational deal. This is the largest ever deal done in Mexico in the energy space, it's the top five ever in Latin. Of course, what is the rationale for Iberdrola? If we move to page three, as announced yesterday after our meeting with the president of Mexico, Iberdrola have signed an agreement with MIP, Mexico Infrastructure Partners, which is one of the largest infra funds in Mexico, with more than $4 billion under management. To sell 8.5 GW for around $6 billion.
This price can be adjusted and increased by final price adjustment till closing. MIP will finance the transaction with funds from Mexican Public Institution. Approximately 40% of the transaction will be funded through equity from FONADIN, which is the national infra fund. The rest 60%, our first instance, will be financed by local development banks, and later private commercial banks will be incorporated. The portfolio is formed by 13 assets, 12 of them CCGTs with a total capacity of 8.4 GW and one wind farm, La Venta, of 103 MW under a PPA scheme, so contracted with CFE as our CFO was explaining. Indeed, 7.4 GW, so 87% of the total asset base are assets contracted with CFE and subject to government concessions. And this transaction also permits the risking of Iberdrola Mexico.
Four assets of the perimeter, around 1.4 GW, are currently stopped due to open litigations with regulatory bodies. These projects are Monterrey 3 and 4, Topolobampo III, and the former cogeneration plant transforming to a CCGT called Enertek that you can see in the backup. Almost 5 GW, so 60% of the total asset base that we are selling, have been already more than 16 years in operation. What is more important, as Pepe was mentioning, Iberdrola keeps its presence in Mexico with almost 2.5 GW, or, and more than 1 GW in renewables. Also we have a fantastic path to grow with more than 6 GW of renewable pipeline.
The remaining 1.2 GW of CCGTs that are El Carmen and Dulces Nombres , will allow us to secure energy to our private customers. Regarding transaction and the calendar, the next steps is to close this PA in the next few weeks, receiving the letter of credit by the buyer, obtaining regulatory approvals from the typical government bodies like CFE, CRE and COFECE, which is the antitrust government body. Our common idea, both the buyer and the seller, is to close as soon as possible, being the longest of date, the 31st of December of this year. After explaining this, I pass again to Pepe Sainz.
Thank you. Thank you very much, David. As I was commenting, this deal fits perfectly with our strategy. Basically, through this deal, now we have an opportunity of recycling capital towards growth in new opportunities in the USA through IRA and in Europe through the REPowerEU, increasing the exposure to A-rated geographies. At the same time, as David was mentioning, we will grow in Mexico, in renewables and with private clients, something that we didn't had looked at it up to now, given, you know, the regulatory uncertainty we had in Mexico. Obviously, this improves our financial strength and obviously that improves strongly our ESG strategy. Let me give you briefly the financial impact of this deal.
you know, gross cash proceeds or lower debt are around EUR 6 billion. We are, you know, giving back EUR 550 million of EBITDA. We maintain around EUR 400 million of EBITDA. This has an impact on our net profit, you know, of around $90 million. Let me stress here that Iberdrola maintains our net profit target for 2025. That in terms of 2023, obviously, although we don't have yet, you know, a capital gain number, this means where we are expecting to have a significant capital gain for 2023. This improves our FFO over net debt about 50 basis points in our FFO over net debt ratio and 0.2 x improvement on our Net Debt/EBITDA ratio.
The new Iberdrola in Mexico, we have around 50% of our new generation capacity will be renewable, as we have mentioned, with a meaningful pipeline to foster growth in the country. As we were saying, 2,400 MW in operation, 6,000 MW of renewable pipeline, contribution of $400 million in 2023 EBITDA, and maintaining our commercial activity and access to firm capacity to ensure the supply to Mexican private customers and foster renewable growth. To conclude, we think this is a win-win deal for both Mexican government and Iberdrola, reaffirms the group strategy. We want to stress that Mexico remains our core market and we still look for growth in Mexico with a greener mix of generation and focus in private clients with...
at the same time that Iberdrola strengthens its financial position. We think that this deal has been done an attractive valuation for Iberdrola and this important in the decarbonization strategy of the group. We have already achieved 90% of our asset rotation plan and partnership plan. I insist we will still continue to look for opportunities to create value for our shareholders. Thank you very much and we are open to questions.
The first question comes from the line of Alberto Gandolfi from Goldman Sachs. Please go ahead.
Thank you, good morning, and thanks for taking my questions. I'll speak to two. First of all, congratulations on this move. My two questions are the following. The first one is, am I right in thinking that this was not in your plan in the last CMD? What role the US IRA played in maybe changing your mind and accelerating your strategy? It seems to me you are accelerating your strategy here. Is this part of a wider plan to reduce the exposure to emerging markets and redeploy capital towards the US IRA and Europe IRA or REPowerEU? Maybe you hinted to it, but is this it, or can we even expect more if there is more clarity, more tangible proof that Europe is actually replicating the US IRA?
The second question is much shorter. Can you help us grasp and quantify the U.S. IRA opportunity for Iberdrola? Thank you so much.
Okay. Well, thank you very much, Alberto. Well, basically, obviously, this deal gives us opportunities to accelerate growth in the US, given the IRA. Probably, you know, at some point, we will review our renewable plans in the US. Let me, you know, give the Avangrid the opportunity at some point to explain their probably new targets in the US. Obviously, in Europe, I mean this deal improves our financial strategy, our financial strength. We will be able probably to look to more opportunities basically, in Europe and in the US. Also, let me stress our commitment to Mexico.
You know, where, you know, the new opportunities could open. Obviously we continue very happy in Brazil. I think that this deal obviously gives us, in the short term, opportunities in Europe and in the U.S. that could be very interesting, but still we are committed to Mexico and to Brazil. We think, you know, that this also gives us opportunities for renewable developments in Mexico in a much better relationship with the Mexican government.
Thank you so much.
Please.
The next question comes from the line of Javier Garrido from JP Morgan. Please go ahead.
Hello. Good morning, everyone. Thanks for taking my questions. The first one would be on the $400 million EBITDA that you are retaining in Mexico. Can you give us some indication of how much is coming from renewables? If you are expecting in that $400 million to continue to have any meaningful contribution from the commercial agreements that you are retaining with your private clients, which I understand you will sign deals with the new owner of the assets to continue to supply to your private clients. If there is any meaningful contribution from that, or is simply the asset base profits what makes the $400 million EBITDA you expect to retain? The second question is more strategic.
I mean, this looks like a great deal really, but Pepe, you mentioned you have already raised 90% of the expected proceeds from disposals, and you are looking at more deals, while the acceleration of growth in renewables, as we have seen in the last couple of years, is taking time with permitting, with all sorts of bottlenecks in the value chain. Are you happy to exceed your disposal targets, even if this takes some time to be redeployed into capital? Or will you accommodate your disposals to the pace of acceleration that you can actually deliver on renewables development? My question is simply, is there a risk or that we see some time gap in both processes? Thank you.
Okay. Well, thank you, Javier. Well, first of all, I have to say that we retain all our commercial agreements with our private clients. This is important. We do it through our combined cycle. You know that we maintain and we have some PPAs also that guarantees for all our clients in Mexico that we will maintain the agreements. Most, obviously, most of the EBITDA is coming, you know, now from our supply business and our commercial activity. I don't have an exact disclosure, but I think that was very, very important for us, okay? In that sense, we are maintaining absolutely our supply business in Mexico through renewables and combined cycles, yeah.
Obviously, our combined cycles are working more times than our renewables, because more or less we have the same amount. The larger part of this EBITDA is coming from our combined cycles plus our supply business. In terms of the second question, I mean, we want to be very pragmatic. I think we've been mentioning, that we see that there is good opportunities. Obviously, this allow us, for to look for opportunities, for growing. Obviously, we could look to some more opportunities of inorganic growth, basically in A-rated countries, where we are present and we want to grow.
Well, we'll see about the time gap, but in any case, as you know, as we are saying, this operation is very dilutive in a very small scale, only about EUR 90 million. I don't expect any gap in the short term, but further possibilities of growth in further opportunities of growth for the medium long term, okay? As I was mentioning, Javier, we are not changing our net profit target for our 2025 year, and this will probably give us opportunities for growth for the 2025-2030 period.
That's very clear. Thank you.
The next question comes from the line of Fernando Garcia from RBC. Please go ahead.
Good morning, everybody, and thank you for taking my questions. I will speak to the two as well. First, I have to say that I was surprised watching the video of the agreement this morning in which López Obrador looked very friendly with Iberdrola, no? My question here is, there are several regulatory problems open between Iberdrola and Mexican regulators. What can we expect now within this agreement? The second question is, if you can tell us what is the CapEx invested in the assets sold, and if you can provide some color about the returns Iberdrola got in these assets. Thank you.
Okay. Well, I think that as David has very well explained, you know, in terms of these regulatory problems that we had with the Mexican government, as most of them were in the assets that we have been transferred or sold to the Mexican government, all the regulatory problems, you know, go with the assets. In this sense, we can say that we are almost free of any problem with the Mexican government. I think this is a very important element in this deal. Second, I have to say also that, you know, I think that we think that we enter into a new phase of relationships with the Mexican government.
The Mexican government was interested in buying especially these, I would say, I would call them concessions, and that was, you know, important for them. I think that, you know, from now on, obviously that changes the relationship that we have had with the Mexican government for good, and that gives us opportunities in this country, you know? In terms of other things, I think that we are right now in a very early moment. As you know, we have signed a memorandum of understanding, and so probably we will be able to give you more color on this in the future, you know, regarding the CapEx, et cetera. Okay.
Before going to the next question, we have some details that are going to be provided by David. David, your time.
Yes. Regarding the previous question about the EBITDA, the $400 million, more or less, $150 million of EBITDA are coming from CCGTs. 2/3 are from the normal operation of the CCGTs and EUR 50 million from the commercial side. As Pepe was saying, we maintain impacted our commercial business there in Mexico. We have another $50 million approximately that come from the cogeneration, and the rest, up to $400 million, come from the renewables. More or less, again, $150 million from the CCGTs that will remain with the commercial activity, EUR 50 million from the cogeneration, and $200 million from renewables.
Okay. Now next question, please.
Thank you. The next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead.
Hello. Thank you for taking my questions. Firstly, on the remaining wind pipeline in Mexico, how much, you know, emphasis should we place on this? What is the likelihood that you would be able to convert any of those into spinning assets before the end of the decade? My second question is for both of you, Pepe and David. On the basis that you have a marginal euro to invest globally, where do you see the best IRRs in your sector currently?
Okay. Well, thank you. Thank you for your question. Well, I think that now we have to wait after this deal, we have to wait to see what are the new policies of the Mexican government regarding renewables. The Mexican government, you know, has said that they want to invest in renewables. I think that there is a very important opportunity right now, you know, in Mexico as there is this nearshoring in the US as they are trying to change China for Mexico. We know there are important plans for you know, to develop industries in Mexico.
Obviously, that needs energy, and obviously we are willing to start investing there. You know, we have to wait a little bit to see what is the new policy after this deal of the Mexican government. Thereon we will start to see what are the investment opportunities to be more specific. We will see how this situation evolves in Mexico in the next months. You know, we have said regarding the marginal euro that the U.S. is a country where we think that it's the country where most of our investments are being directed.
Obviously there are new opportunities in other parts of the world, as of to now, we have said, or we think that the U.S. probably is the country that brings more opportunities for the medium and long term, no?
Much. Thank you.
Next, please.
The next question comes from the line of Fernando Lafuente from Alantra Equities. Please go ahead. The next question comes from the line of Javier Suárez from Mediobanca. Please go ahead.
Hi. Good morning, all. Two questions remaining. The first one is on your calculation for the 11 x enterprise value to EBITDA. You can help us to reconcile that number. I guess that the question here is in the numerator, the debt that you are deconsolidating as a consequence of the disposal of this asset. On the transaction, on the EBITDA that you are retaining, if I'm adding up the EBITDA of the asset that have been sold, $550 million, plus the EBITDA that you are retaining, EUR 400 million, totally adding up to EUR 950 million, which is ahead the numbers that we have seen in the last couple of years.
Can you help us to reconcile, these two numbers? That would be the question number one. The second question is on the capital gain that has been mentioned during the call to be a significant one in 2023. You can help us to understand if this capital gain is eligible for the dividend payment of 2023. Thank you.
Javier, this, we will give you more detail on the, on the numbers, but also take into account that some of the assets were not working, where 1,000 MW were not working last year. You know, that should be included in part of the calculation, no? Second, obviously, you know, we don't have a data number for capital gains, so it is difficult to give you. I think that our dividend policy shouldn't change very much, you know, even if there is a significant capital gain. I am the chief financial officer, and this is a decision that has to be taken by the shareholder, by the general shareholders meeting and the board, et cetera.
My opinion is that it will not change very much from what we have been saying in our strategic plan.
Next question, please.
The next question comes from the line of James Brandn from Deutsche Bank. Please go ahead.
Hi. Good morning. Congratulations on the deal from me as well. I had one question remaining on the transaction, then one I was hoping I could ask just on other aspects. On the transaction, I very much get the feeling from how you answered some of the earlier questions that you'd be looking to reinvest the proceeds from this deal in other areas. Maybe you could just confirm, you gave a leverage target for 2025 of 3.4 x at the Capital Markets Day. Is that still roughly the right kind of leverage that we should be thinking about in 2025? That's the first question. Then secondly, on the kind of other things, the...
We obviously have the power market reform proposals from the European Commission, and in there were no proposals about extending price caps. I saw the Spanish government got approval to for the gas kind of mechanism for power gen through to the end of this year. I was wondering whether you thought that the European Commission proposals made it likely that after this year, that these emergency measures didn't get extended or whether you thought Spain may try and extend them after the end of this year in spite of that not being a feature of the Commission proposals. Thank you.
Sorry. Yeah, I think that our leverage target shouldn't change. As we are saying, this deal gives us the capacity to invest, also to do more deals, so hopefully we will do them. You know, let me not comment on the market reform proposals of the European Union and Spain. I mean, we are more focused on the Mexican deal and, you know, I think that probably this is not the moment. Sorry, not to answer that question, but I think that right now, I mean, probably this is not the most appropriate moment to discuss that.
Obviously, I have other people in the company that is more entitled me in talking about the proposals of Europe in the market reform.
Next question.
The next question comes from Jorge Guimarães from JB Capital. Please go ahead.
Good morning. Thank you very much for taking my questions. The first one is the detail on the earnings dilution. If you can elaborate on the amount of D&A that is being considered for your earnings dilution calculation. The second is related to your 2025 net income objective. You say you are reiterating the EUR 5.2 billion-EUR 5.4 billion objective, but you are also saying that you are losing, roughly speaking, EUR 80 million. Where do you see other areas improving that compensate the dilution from the Mexican deal? Thank you very much.
Well, I think that, you know, as we were saying, the Mexican deal gives us the opportunity to reinvest in or to accelerate growth in other areas. I think there was a question before, I think it was Alberto was asking, you know, about, you know, our U.S. strategy. Probably we are going to accelerate growth in the U.S. and obviously there we are analyzing some opportunities also of growth. Our M&A team is a very active team and we are always looking to opportunities that could, you know, compensate this EUR 90 million, no. In that sense, you know, we are not changing that objective and I think that we can...
I mean, we are talking about EUR 90 million out of a EUR 5.2 billion, EUR 5.4 billion, this is not, you know, a very large number for a group like Iberdrola not to be able to compensate it, no?
Next question, please.
The next question comes from Javier Garrido, from JP Morgan. Please go ahead.
I probably just a quick follow-up. Is there any understanding between Iberdrola and the Mexican government that Iberdrola will invest some of the proceeds from this deal back into Mexico? Thank you.
No, there is not any understanding. Obviously, you know, what we have said to the Mexican authorities that we'll be very happy to start investing in Mexico after this agreement. You know, I think that they will welcome this, but we don't have any specific agreement on this, no.
Okay. This question from Javier Garrido has been the last one already done and is there is anyone who has not been able to ask, please contact to the Investor Relations department, and we will be pleased to answer you. Pepe, when you can, you are able to.
Well, thank you very much to everybody. I think this is a very good deal for everybody, and I hope that you have some days of rest in this Semana Santa. Thank you.