Fibra E Rules Relaxed

Fibra E rules relaxed

June 06, 2016 | By Keith Martin in Washington, DC

Mexico dropped a requirement that a Fibra E can exist for only 10 years in an effort to make the structure more attractive to investors in the infrastructure and energy sectors.

The change took effect in April.

A Fibra E is the Mexican version of a master limited partnership. It is a Mexican trust that invests in shares of Mexican companies that are active in the Mexican infrastructure or energy sectors. There is no income tax at the level of the Fibra E, and there is a liquid market in theory in the shares. These two attributes are supposed to make it possible for Mexican infrastructure and energy companies to raise equity more cheaply.

No such trusts have been formed to date.

At least 70% of the average annual value of total assets must be in shares in companies in the targeted sectors, and at least 90% of the income earned by portfolio companies in which the Fibra E invests must come from targeted sectors.

The targeted sectors are electricity (generation, transmission, distribution), various types of private-private partnerships to undertake infrastructure implemented through concession agreements with terms of at least seven years (roads, highways, railways, bridges, inter-city transportation, ports, terminals, marinas, airports, prisons, potable water, drainage, sewage treatment plants, expansion of the main telecommunications network) and downstream oil and natural gas (treatment, processing, refining, transportation, storage, distribution, but not exploration and production or retail sales).

The trust issues certificates that are listed on the Mexican stock exchange.

It must distribute at least 95% of its income to shareholders each year by the following March 15. There is generally no income tax at the Fibra E level. Tax is collected from the shareholders through a 30% withholding tax on distributions. Mexican shareholders can claim credit for the tax withheld. Foreign shareholders can treat the withheld tax as their final tax. The trustee must pay tax on any income that is not distributed.

Earnings at the level of the portfolio companies are also less heavily taxed. They can be distributed to the Fibra E without a 10% withholding tax that would normally be collected on dividends.