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Edited Transcript of IENOVA*.MX earnings conference call or presentation 22-Feb-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Infraestructura Energetica Nova SAB de CV Earnings Call

Mexico, D.F. Feb 22, 2017 (Thomson StreetEvents) -- Edited Transcript of Infraestructura Energetica Nova SAB de CV earnings conference call or presentation Wednesday, February 22, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Sue Bradham

Infraestructura Energetica Nova, S.A.B. de C.V. - IR

* Carlos Ruiz Sacristan

Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO

* Arturo Infanzon

Infraestructura Energetica Nova, S.A.B. de C.V. - CFO

* Tania Ortiz

Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer

* Nelly Molina

Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Finance

* Roberto Rubio

Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller

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Conference Call Participants

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* Christian Audi

Santander - Analyst

* Nikolaj Lippmann

Morgan Stanley - Analyst

* Pablo Ordonez

Itau - Analyst

* Frank McGann

BofA Merrill Lynch - Analyst

* Jean Bruny

BBVA - Analyst

* Ezequiel Fernandez

Scotiabank - Analyst

* Pablo Monsivais

Barclays - Analyst

* Pedro Medeiros

Citigroup - Analyst

* Alexander Burgansky

Deutsche Bank - Analyst

* Barry Klein

Macquarie - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the IEnova fourth quarter 2016 financial results conference call. At this time, all participants are in a listen-only mode to prevent background noise. (Operator instructions.)

Now I would like to welcome and turn the call to Ms. Sue Bradham. Please go ahead.

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Sue Bradham, Infraestructura Energetica Nova, S.A.B. de C.V. - IR [2]

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Good morning. Thank you for joining us. Today we will be discussing IEnova's fourth quarter 2016 and full year 2016 financial results. A live webcast of this teleconference and slide presentation is available on our website in the Investor Relations section.

In the presentation, you will find our disclosure statement. The forward-looking statements contained in this presentation speak only as of today, February 22nd, 2017, and the Company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With us today on the call are several members of our management team; Carlos Ruiz Sacristan, Chairman and Chief Executive Officer; Arturo Infanzon, Chief Financial Officer; Tania Ortiz, Chief Development Officer; Nelly Molina, Vice President in Finance; and Roberto Rubio, Vice President and Controller.

Please turn to page three of the presentation provided on our website, and I'll turn the call over to Carlos.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [3]

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Good morning, everyone. Thank you for joining us today. First of all, I would like to highlight our most important 2016 achievements.

We won two natural gas bids, the marine pipeline and Empalme Lateral. We were awarded two clean energy projects, Rumorosa Solar and Tepezala II Solar. We closed two acquisitions, Gasoductosde Chihuahua and Ventika.

We increased our revolver credit from $600 million to $1.2 billion. And finally, we successfully executed a $1.6 billion equity follow-on. I will now talk more about these achievements. Please turn to page four.

In relation to the natural gas bids, we are developing the $2.1 billion marine pipeline with TransCanada. It is the first natural gas marine pipeline and the largest marine pipeline in Mexico. We are also developing Empalme Lateral that interconnects with our Sonora pipeline.

Please now turn to page five. In relation to the preliminary auctions, we were awarded two solar projects CENACE's second long term energy auctions. Together, these projects generate 141 megawatts and represent an investment of approximately $150 million.

The first project is Rumorosa Solar in the state of Baja California, and it has a capacity of 41 megawatts. The second project, Tepezala II Solar in the state of -- in Aguascalientes, has a capacity of 100 megawatts. The Tepezala II Solar project will be jointly developed with Trina Solar, who will own 10% of the project.

Please now turn to page six. In relation to acquisitions, we acquired two companies for more that $2 billion, and we are finishing the acquisition process. First we purchased the remaining 50% of Gasoductosde Chihuahua for $1.144 billion, which includes seven assets.

Second, we purchased 100% equity interest in the Ventika wind generation facility for $920 million, which included -- Ventika consists of largest wind farms in Mexico and has an installed capacity of 252 megawatts.

One of our goals is to continue growing our wind energy portfolio. Ventika and the two solar projects add to the clean energy portfolio that began with the development of Energia Sierra Juarez.

Please turn to page seven. Following these new projects and acquisitions, we took two important steps in 2016. First, we successfully executed an equity follow-on for the issue of 380 million shares at MXN80.00 per share, raising $1.6 billion. With this equity issuance, we strengthened our balance sheet to support future growth and increase our liquidity.

Second, we increased our revolver line, upgrading from $600 million to $1.2 billion. The line is being used for working capital, capital expenditures, and other general corporate purposes.

I will now turn the call over to Arturo to discuss our financial results and construction progress.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [4]

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Thank you, Carlos. Please turn to page eight. Fourth quarter 2016 adjusted EBITDA was $161 million, up 69% from $96 million in the same period of 2015. Full-year 2016 adjusted EBITDA was $504 million, up 29% from $392 million in 2015.

The adjusted EBITDA increase during both periods was mainly due to the acquisition of the remaining 50% of Gasoductos de Chihuahua, income related to the Sonora pipeline Guaymas?El Oro segment, and the start of operations of the Ramones Norte pipeline in February 2016.

I would like to mention that our $504 million adjusted EBITDA for the year was in line with our expectations and at the midpoint of the guidance that we gave last year of $485 million to $525 million.

Profit for the quarter of 2016 was $28 million, compared to $45 million in the same period of 2015. The decrease was mainly due to higher income tax, which was partially offset by the acquisition of the remaining 50% of Gasoductos de Chihuahua and income related to Sonora pipeline Guaymas?El Oro segment.

Excluding the one-time cash [sic, see slide eight -- non-cash] effects of $673 million impact related to the remeasurement to fair value of our previously held

50% interest in Gasoductos de Chihuahua and the after-tax impairment charge of $96 million related to Termoelectrica de Mexicali power plant, 2016 profit was $178 million compared with $140 million in 2015.

The increase is mainly due to the acquisition of Gasoductos de Chihuahua, income related to the Sonora pipeline Guaymas?El Oro segment, and mark-to-market losses on an interest rate swap in 2015, partially offset by higher income tax expense, losses from discontinued operations in TDM, higher depreciation, and finance costs due to the acquisition of the remaining 50% of Gasoductos de Chihuahua and the acquisition of Ventika.

I will now provide updates for our projects under construction. Please turn to page nine. At our second segment of the Sonora pipeline, the issue that delayed the project was resolved without any impact on our economics, and we are currently in the pre-commissioning process. The project will start operations by the end of this quarter.

At our Ojinaga?El Encino pipeline, we have rescheduled the commercial operations date to the second quarter of this year. As with the Sonora pipeline, our economics will not be impacted. Construction of this project is around 80% complete.

The San Isidro?Samalayuca pipeline construction is in the pre-commissioning process and will start operations by the end of this quarter.

Our Empalme Lateral construction is moving forward according to plan, and will start operations in the second quarter of this year.

On both of our solar projects that we won last September, we are starting engineering and procurement activities. Construction activities will begin next year.

We are also moving forward according to our plan on our marine pipeline project, which is being developed under our joint venture with TransCanada. Construction activities will start in the second quarter of this year, and we have made progress in permits and right-of-way acquisitions. The project will start operations by the end of 2018.

I will now turn the call over to Tania to discuss new projects.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [5]

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Thank you, Arturo. Please turn to page 10. In 2016, we achieved the extraordinary performance that Carlos mentioned by focusing on new opportunities in development and acquisitions. We continue to focus on growth initiatives that are consistent with our strategic plan in order to capture new business opportunities.

Initiatives we are currently working on include mergers and acquisitions of strategic assets that fit our business model. The two acquisitions we made in 2016 are a great example, strategic partnerships with both companies that are already in the market and new companies seeking to enter.

A good example is our joint venture with TransCanada, asset optimization such as the expansion of our existing assets, opportunities from the energy reform with Pemex and CFE, and new business opportunities across the energy sector with private companies in areas such as clean energy, gas and refined product storage, and refined products infrastructure.

Lately we have been most active in M&A, liquids infrastructure, asset optimization, and renewable energy. Now I will give you an update on the projects that we have mentioned in previous calls.

In October, CFE published the preliminary bid guidelines for a $1.2 billion transmission line project to connect renewable generation in the southeast of the country to demand in the center of Mexico. We expect the definitive bid guidelines for this project to be published in the coming months.

For the Baja Sur natural gas project, CFE has scheduled another meeting in March in which they could let us know the data for the submittal of proposals.

Finally, the third electric energy auction is expected to be issued in the second quarter of this year. We expect between 2,000 and 3,000 megawatts to be awarded. For the first time, private off-takers will be able to participate as buyers in addition to CFE.

I will now turn the call back to Carlos.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [6]

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Thank you, Tania. Please now to page 11. So, I would like to provide adjusted EBITDA guidance for 2017.

This year we expect adjusted EBITDA to be within the range of $735 million to $765 million. We base these projections on growth from the acquisitions we made and the projects we completed last year, the contracted projects that are coming into service this year, and continued improvement across our operations.

I would like to highlight that this substantial growth in adjusted EBITDA of 49% year-over-year is already contracted, and the team is focused on executing the contracted projects to achieve this goal.

In terms of this year's budget for capital expenditures, we expect to invest more than $800 million. The majority of this amount is to fund the marine pipeline.

In summary, please turn to page 12. I am pleased with the important growth of the business and the $5.5 billion of transactions that we completed in 2016, especially the closing of the two acquisitions, the completion of $1.7 billion equity issuances, our ability to win two pipelines, and two solid projects.

The focus for this year is to achieve the 49% EBITDA growth and to find new projects that will continue delivering growth with attractive returns and stable cash flows.

We are planning an investors' day for mid June in New York City to discuss our plans in richer detail. We will make more information available about timing and release it in the coming weeks.

With that, I will open up the call for your questions. Thank you.

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Questions and Answers

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Operator [1]

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Thank you. (Operator instructions.) Christian Audi, Santander.

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Christian Audi, Santander - Analyst [2]

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Thank you very much. Hello, Carlos, Arturo, Tania, Sue and the whole team. I had a few questions, the first one related to your guidance. Can you just explain to us what drives this range of guidance? Is it more the potential startup of some projects that leads you to have a range, or is it something other than timing that leads you to have this range per segment?

The second, Arturo, on the project updates, you mentioned that the Ojinaga?El Encino is back into order. Are you concerned or is there any risk about any other projects that you are paying particular attention to as we approach their target COD?

And then the last question was related to new projects. Tania, you mentioned the bid guidelines for the electricity transmission almost being out. Have you seen anything different on the preliminary bid guidelines that is new to you, whether it's CapEx or anything that caught your attention in terms of being different from your expectations?

And also, on the M&A front, are you seeing yourself being better positioned, given all that's happening in the US and the change in government? Maybe appetite for Mexico may by -- it may have gone down and therefore there is more M&A opportunities for you, established Mexican players, that we are seeing, or are you still seeing a lot of players actively playing this M&A market? Thanks.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [3]

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Okay. Good morning, Christian. Starting with the first question on the EBITDA range, it has two main drivers of the range. The first one, our synergies associated with the acquisition of Gasoductosde Chihuahua, which has a timing effect on when we are done with the full integration of the company.

And the second, we still have more than half a year of TDM operations, which includes a negative impact on EBITDA associated with our major maintenance. So, those are the two main drivers for the range.

In terms of the schedule for the projects under construction, the dates that we mentioned in the call are getting very firm. And as we mentioned on the call, we don't expect any economic impact on the projects.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [4]

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Good morning, Christian. With regards to the new projects and as regards to the transmission line, we have not seen any documents since the draft documents were issued last year. What we would expect to see out of the final bid documents is to have a balanced risk profile.

We all understand what the key risks are with this project's permitting rights-of-ways and general delays around commercial operation. So, we would expect more balance around those issues, but that's, again, yet to be seen.

On the M&A front, I believe IEnova continues to be very, very well positioned to capture potential asset acquisitions. We are -- I would say it's a little early to say, but we are seeing a little bit more assets for sale than we were seeing last year. So, yes, we may be seeing a little bit more opportunities.

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Christian Audi, Santander - Analyst [5]

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Great. And going back to the electricity transmission, Tania, so as far as you know, we're still talking about a 25 year contract. But unlike the natural gas pipeline, you are not going to own the asset. Is that correct?

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [6]

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That is correct. It would be a long term take-or-pay contract. But at the end of the contract, the asset would be transferred to CFE.

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Christian Audi, Santander - Analyst [7]

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Okay. Thank you very much.

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Operator [8]

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Nikolaj Lippmann, Morgan Stanley.

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Nikolaj Lippmann, Morgan Stanley - Analyst [9]

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Good morning, everyone, and thanks for -- congratulations on your numbers. Thanks for taking my questions. First just a follow up question, though, on Gasoductosde Chihuahua. Can you discuss maybe in more details the nature of the synergies, if you could quantify them? And also, when we think about the range, should we think about it more as a timing issue rather than a potential issue, i.e., if you don't get it in 2017 we would then -- would it then come in 2018? So, that's the first question.

The second question, if you could, discuss the pecking order. You're looking at all these new projects. What would be your priority in terms of transmission, or are you looking at cogeneration plants, renewable energy? What is sort of the top of your priority?

And then finally -- sorry about all these questions. Finally, on that Oaxaca transmission project, that is a huge project. I would imagine that there has been other issues, but several issues with permitting, communities and other things. It's almost a transformational project for you guys. Is that something that is very high on your priority list, or is it sort of middle of the road there? Thank you very much.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [10]

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Okay. Good morning. Regarding the synergies of Gasoductosde Chihuahua, the range that we built in the guidance is $15 million to $20 million for full year. The range has to do with the timing on when can we achieve the final full synergies for this project. If we don't achieve it this year, most likely next year we'll be at the full $20 million.

And the other thing to consider in this range is that, as I mentioned, we have in this guidance TDM, which we continue to have volatility on the energy prices in California. So, that also has a component in the range.

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Nikolaj Lippmann, Morgan Stanley - Analyst [11]

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Thank you.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [12]

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With regards to the new development projects, in the very short term our focus is very much on renewables and in liquids infrastructure. And renewables because there is currently a lot of appetite for large off-takers for clean energy due to the clean energy goals that have to be met starting in 2018, and with liquids infrastructure because, as I'm sure you're aware, the market is opening up to competition for refined products starting this year.

So, those are a short term focus. We are also always focused on optimizing our existing assets, particularly natural gas pipelines. And with regard to the transmission line, it is a very challenging project, but we do believe we have the skills to tackle it because of our experiencing in developing complex linear projects.

So, we will be looking at it carefully. And our level of interest will very much be determined by the contract structure to ensure that we continue with our business model of long term, stable flows from the asset.

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Nikolaj Lippmann, Morgan Stanley - Analyst [13]

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Thanks. Just to follow up on that one, if I may, would you be thinking about -- would you be using a higher risk premium for projects in that part of the country than you would in other parts of the country? And I'm asking because specifically, I guess a couple of public companies in Mexico have had very specific issues with permitting in that neighborhood and even related to electricity.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [14]

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I'd say, I mean, we will need to see what rates of returns are appropriate depending on the risk profile. Oaxaca is a fairly complex area. So, what we would look for is the appropriate contract terms to ensure that we can mitigate those risks.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [15]

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And also, if I may, supposedly on the electricity line in Oaxaca a substantial part of the right-of-ways has been already acquired by CFE. We don't have yet any bids of that. And that will be part of the whole region. If there's a substantial part of those right-of-ways already there, it substantially reduces the risks of the project. But we'll have to see.

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Nikolaj Lippmann, Morgan Stanley - Analyst [16]

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Got it. Okay. Thank you very much.

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Operator [17]

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Pablo Ordonez, Itau.

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Pablo Ordonez, Itau - Analyst [18]

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Hi. Thank you for taking my call, and good morning. Congratulations on the results. My first question is really on your balance sheet. Now that we have seen an important deleverage in the fourth quarter, what should we expect for the rest of the year, assuming that there are no new growth projects? Where should we expect net debt to stabilize? And this is my first question.

And the second one is regarding your dividends, and not only for this year, for the next years. Now that you have consolidated Gasoductosde Chihuahua, what could be like the better guidance for the dividend policy ahead? Thank you.

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Nelly Molina, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Finance [19]

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Good morning, Pablo. Nelly Moline here. Regarding the financing during this year, as we face capital commitments of more than $800 million, we believe we have sufficient liquidity because we have an available line of credit of more than $700 million. And besides that, the cash from operations, that will help follow these capital commitments, not only for the marine pipeline but for the other projects that we have that have to be completed during this first half of the year.

And regarding the net debt to EBITDA ratio, we feel comfortable to keep the investment grade with ranges around 3.3 to 3.5 times net debt to EBITDA.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [20]

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In relations to the dividend question, as you know we have not announced at any point whatsoever on the relation on a yearly basis. And in the later part of the year, we will announce the amount of the dividend that we'll expect to meet.

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Pablo Ordonez, Itau - Analyst [21]

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Okay. Thank you very much for the color. One last question, if I may. Regarding your guidance and particularly in the power segment, I was wondering if the $68 million to $77 million that you're expecting, do they also include the bid up from TDM, or is this only the guidance for Ventika? Because I think that we were expecting Ventika's EBITDA around $87 million. So, can you give us more color on this, please?

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [22]

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Yes. The range includes TDM, which is a negative impact of more than $10 million.

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Pablo Ordonez, Itau - Analyst [23]

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Okay, perfect. Thank you very much.

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Operator [24]

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Frank McGann, Bank of America Merrill Lynch.

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Frank McGann, BofA Merrill Lynch - Analyst [25]

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Hello. Thank you very much. Two questions, if I could, one just in terms of the overall market environment. There's been a lot of volatility, obviously, in FX, and interest rates have started to rise a bit. And you have the uncertainty about a border tax between the US and other countries. I'm just wondering how you see this environment changing the way you look at your business, how you look at bidding for new projects or the risks associated with those projects. If you could, maybe just give a little bit of a view from a strategic standpoint, how you're seeing this more volatile environment affecting your decisions.

And then secondly, just wondering about the LNG facility, if there's any update on when you might make a decision regarding that.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [26]

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Thank you, Frank. You're right. The market environment means that there is a lot of volatility in the market, especially on the foreign exchange market. And that volatility will continue to be there until the fundamental problems are solved. That means NAFTA and other things, which I trust they will be solved within the year.

We obviously have thought about this a lot. But fundamentally we are going to continue our business model in seeking opportunities that fit that business model, long term contracts with great (inaudible) dollar denominated and a large infrastructure in the country.

So, perhaps this volatility will mean that the rate of returns on the projects are going to be higher because the cost of capital is increasing. And yes, I think all that will happen. But we'll continue with our business model that I think makes a lot of sense, especially in this type of environment.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [27]

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Good morning, Frank. This is Tania. With regards to our liquefaction project, as we had mentioned last year, we did file for all the major federal permits to convert a regas facility into a liquefaction facility. We filed for those permits late last year, early this year, both environmental impact, social impact, and Energy Regulatory Commission.

We should probably obtain those permits either late this year or early next year. And at that time, we'll start going to the market to see what the appetite is for the project. So, we are progressing according to plan.

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Frank McGann, BofA Merrill Lynch - Analyst [28]

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Okay. Thank you very much.

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Operator [29]

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Jean Bruny, BBVA.

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Jean Bruny, BBVA - Analyst [30]

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Hi. Thank you for the call, just a couple of questions. The first one is on the TDM sale. How well advanced on you on the project? And I've seen in your balance sheet that you recognize a bit below $200 million of assets for sale. Is it the price tag you are expecting for TDM?

And the second question is on your CapEx guidance for this year, $820 million. The growth is for the JVs, $560 million. Can I assume that most of it is for the Texas-Tuxpan pipeline? Thank you very much.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [31]

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Yes. In terms of the process, I mean, we continue -- we expect to have our closing of a transaction during summer. As you know, we're in the middle of a process. We cannot comment on the details of the economics, but the process continues. We have parties interested, and we believe we will be ready to close the transaction during summer.

And your second question, can you repeat it, please?

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Jean Bruny, BBVA - Analyst [32]

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Yes, sure. It was on the CapEx for this year. In the breakdown, you say that $560 million is for the joint venture. Can we assume most of it is for the Texas-Tuxpan pipeline?

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Nelly Molina, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Finance [33]

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Yes, it is exactly the CapEx for the marine pipeline.

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Jean Bruny, BBVA - Analyst [34]

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Thank you.

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Operator [35]

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Ezequiel Fernandez, Scotiabank.

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Ezequiel Fernandez, Scotiabank - Analyst [36]

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Yes, hi. Good morning. Thank you for taking my question. The first one -- I have actually three questions. I would like to go one by one if you don't mind. If you could, give us an idea of the EBITDA contribution of Costa Azul, of the LNG import business, for the 2016 adjusted EBITDA. In the past, you usually gave the percentage of contribution from Costa Azul, or any other reference would be helpful.

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [37]

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Good morning, Ezequiel. This is Roberto Rubio. Thank you for listening to us. 29% of the total EBITDA of the company in 2016 is related to our LNG business, including Energia Costa Azul facility in Ensenada.

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Ezequiel Fernandez, Scotiabank - Analyst [38]

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Okay. That is 29% of the consolidated EBITDA or of the adjusted EBITDA?

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [39]

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Consolidated EBITDA, the $504 million.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [40]

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Adjusted EBITDA.

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [41]

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Adjusted EBITDA.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [42]

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Adjusted EBITDA.

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [43]

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Adjusted EBITDA.

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Ezequiel Fernandez, Scotiabank - Analyst [44]

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Adjusted EBITDA, okay. Okay, great. Thank you very much. My second question is related to the performance during the fourth quarter of the gas segment. Including 100% of GC, or Gasoductosde Chihuahua, and excluding the Los Ramones Norte JV contribution to EBITDA, in the past few quarters the gas segment generated itself around $120 million. This quarter it was $147 million, very good. I wanted to know what drove the sequential improvement. Was it a meaningful initial contribution from Sonora II and San Isidro, perhaps good results on trading or gas distribution markup, so gas inventories? Any color would be helpful.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [45]

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Okay. The growth of the gas segment is mainly related to the acquisition of Gasoductosde Chihuahua; also the additional income related to the second segment of the Sonora pipeline, Guaymas?El Oro. We don't have a material impact on any trading or inventory, gas inventory, at that segment.

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Ezequiel Fernandez, Scotiabank - Analyst [46]

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Okay, great. Thank you very much. And my final question relates to the -- actually the performance of DEN, Los Ramones Norte II. It seems that it had a tough quarter. You don't report EBITDA separately for that unit, but you do report the JV contribution. And there is some information in your financial statement about Sierra Juarez. So, by difference, we can tell that DEN didn't have a good quarter. At least it's below potential results, using as reference the 2017 EBITDA guidance that you provided. Is there something that went particularly wrong with DEN this quarter?

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [47]

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Yes, I would like to refer to the full year of Ramones Norte pipeline. The total EBITDA, as you mentioned, is around $35 million for the year, our share. But this amount has been impacted by $7 million of exchange rate, having lower revenues than expected.

Also, if you normalize the fact that CO, the commercial operation, for Ramones Norte started at the middle of the first quarter of 2016, the total EBITDA for the year will be around $47 million per year.

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Ezequiel Fernandez, Scotiabank - Analyst [48]

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Okay, great. And I'm sorry, I said three questions but I would lacking one. This is my final one. I wanted to know if the gas segment 2017 EBITDA guidance includes fully or partially the $20 million in synergies from Gasoductosde Chihuahua.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [49]

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Yes, it includes a range of $15 million to $20 million for the gas segment guidance.

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Ezequiel Fernandez, Scotiabank - Analyst [50]

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Okay, that was very clear. And that is all from my side.

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Operator [51]

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Pablo Monsivais, Barclays.

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Pablo Monsivais, Barclays - Analyst [52]

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Hello. Good morning. Congratulations on your results. I have a quick question for you. Can you please elaborate or provide more detail on the gasoline transportation investment opportunities? I mean, do you have any specific plan yet, or what conditions are you waiting for in order to be more active on this growth avenue? Thank you very much. Bye-bye.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [53]

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Good morning, Pablo. This opportunity changed a little bit this year. Gasoline prices were going to be liberalized until the end of the year, and the Ministry of Energy decided to advance it to January of this year. So, gas prices are going to be liberalized gradually throughout the year instead of waiting until December. So, actually the opportunities appeared a little earlier than expected.

We are right now focused very much on storage facilities, primarily in coastal areas where we can provide a service to new importers of products. And we will provide details on specific project as we progress.

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Pablo Monsivais, Barclays - Analyst [54]

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And just to follow up on that, I mean, if we see five years from now, what would be like the size of this market compared -- of this business and for you compared to the nat gas, for example, business?

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [55]

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It's a little bit difficult to put a number. Remember this is just starting. This is a new business opportunity that we will start. And we will have to see how this market develops.

But it's a very important opportunity for us. It's a business that we want to participate. And the idea is when we participate in something it has to be meaningful for us, and we have to be an important player in the market.

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Pablo Monsivais, Barclays - Analyst [56]

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Okay. Thank you very much.

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Operator [57]

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Pedro Medeiros, Citigroup.

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Pedro Medeiros, Citigroup - Analyst [58]

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Okay. Good morning, everyone. Congratulations for the results. I have three questions as well. The first one is if you can give me details on Baja Sur. What's the likelihood and timing for this bid to go ahead? And if possible, can you comment on the progress you have made on the potential technical solution the company is looking for of participating on this bid, and whether that technical solution has any potential synergy with the possible Azul site as a result?

My second question -- well, my second and third questions are very objective opinions. The second question is related to the Ventika guidance for the year in EBITDA terms. I just wanted to understand if we should expect any significant seasonality on the EBITDA from this asset on a quarterly basis, okay? In other words, these contracts are assigned in most part with private consumers. How are these reported in case there is a lower power dispatch in the quarter, okay?

And my third question is if you can give any guidance on how much of the $2.1 billion CapEx guidance for the marine pipeline is already contracted, and whether that number includes capitalized interest and, if possible, if you can give any ballpark reference on the level of contingencies you're assuming inside this guidance. I presume that, given the complexity of this project, the contingency levels might be high. And as a result, I just wanted to understand the potential upside risk on delivering this project below budget. Thank you.

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Tania Ortiz, Infraestructura Energetica Nova, S.A.B. de C.V. - Chief Development Officer [59]

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Thank you, Pedro. Let me start by answering your question on Baja Sur. The timing of the project, all I can say is that we're ready to submit the bids whenever CFE sets the date to receive bids, but CFE has continued to push the date back. So, I am sorry, but I cannot clearly state when bids will be due.

With regards to the technical solution, there are a variety of technical solutions that can work for this project, from LNG to compressed natural gas to onshore pipelines and marine pipelines. We have selected our solution, but we would prefer not to disclose it at this time since it is a competition.

With regards to the marine pipeline, it's basically fully contracted so we've locked in all of our CapEx. Each particular project has a different contingency depending on the risk profile. So, we have an appropriate contingency that reflects the risk profile of this particular project.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [60]

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Okay. And going to your question on Ventika, we expect -- we don't expect a big seasonality on the revenues. This region of the country has very stable wind across the year compared to other parts of Mexico. So, we shouldn't expect a big seasonality.

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Pedro Medeiros, Citigroup - Analyst [61]

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Okay. Thank you so much. Just to confirm on the Ventika side, if by any chance there is lower wind, on a quarterly basis we should see an impact on EBITDA as a result. Is that the case?

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [62]

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Yes. I mean, like Sierra Juarez and any other project, wind has an effect. We built a conservative wind factor in our guidance, so we expect that we will achieve that.

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Pedro Medeiros, Citigroup - Analyst [63]

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Okay. Thank you so much, Arturo. Thank you for that.

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Operator [64]

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Alexander Burgansky, Deutsche Bank.

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Alexander Burgansky, Deutsche Bank - Analyst [65]

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Yes, good morning and thank you very much for the presentation and for the opportunity to ask the question. I was wondering if you performed any analysis internally on the potential -- on the impact from the potential introduction of the border tax in the US, and if you could perhaps share with us some of the main conclusions from this analysis. Thank you.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [66]

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Well, the border adjustment tax in the United States is still under discussion order. If that happened, it will be an impact not in Mexico. It will impact all the rest of the world. So, what -- some analysts say that people will have their large projects reapproved.

On the other hand, but if that's the case -- if that was the case, which I repeat seems like a bigger priority, the only thing that we will be affected marginally is our exports of Sierra Juarez.

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Operator [67]

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Does that answer your question, Alexander?

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [68]

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Maybe he's not on the line.

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Operator [69]

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Okay. Barry Klein, Macquarie.

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Barry Klein, Macquarie - Analyst [70]

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Thanks for taking my question. I just had an item for clarification. Did 2016 adjusted EBITDA include the impact of TDM?

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [71]

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That is correct.

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Barry Klein, Macquarie - Analyst [72]

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It includes the impact.

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [73]

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Yes.

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Barry Klein, Macquarie - Analyst [74]

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And there's a little bit of a -- and 2017 also includes it, I guess?

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [75]

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Yes.

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [76]

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Correct.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [77]

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Yes.

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [78]

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That's correct.

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Barry Klein, Macquarie - Analyst [79]

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Okay. But it's considered discontinued operations, right?

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Roberto Rubio, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Controller [80]

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In our financial statements and our income and profit, yes, it's presented as a discontinued operation still.

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Barry Klein, Macquarie - Analyst [81]

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Okay. What would the adjusted EBITDA be in both years if you removed TDM, I guess the 2016 actual and then the 2017 guidance?

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [82]

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Yes. As I mentioned on the guidance, it's more than $10 million in the range for the power segment.

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Barry Klein, Macquarie - Analyst [83]

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Okay. And it's a $10 million drag or a benefit, just to be clear?

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [84]

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It's negative, $10 million negative.

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Barry Klein, Macquarie - Analyst [85]

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Okay. So, if I wanted to take it out of 2017 adjusted EBITDA, my EBITDA number would go up -- the range goes up by $10 million, essentially.

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Arturo Infanzon, Infraestructura Energetica Nova, S.A.B. de C.V. - CFO [86]

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That's correct.

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Barry Klein, Macquarie - Analyst [87]

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Okay. All right. Thank you very much.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [88]

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Thank you.

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Operator [89]

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And our last question comes from the line of Nikolaj Lippmann with Morgan Stanley.

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Nikolaj Lippmann, Morgan Stanley - Analyst [90]

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Hi, and sorry for coming back. Could you talk to us a little bit about the thinking with regards to your debt funding, whether you would be -- whether you're comfortable with your current amount of debt, if you would be thinking more about diversifying away from some of the bank funding towards more bond funding? What's the thinking about that? Thanks.

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Nelly Molina, Infraestructura Energetica Nova, S.A.B. de C.V. - VP, Finance [91]

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This is Nelly here. Well, we have a variety of financing sources. Currently we have an available credit line with eight banks. We plan to use it for the short term capital commitments, but we also are looking into local and international markets. And when the time comes, we may decide to issue debt, long term debt.

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Nikolaj Lippmann, Morgan Stanley - Analyst [92]

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That's great. Thanks.

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Operator [93]

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And, ladies and gentlemen, this is all the time we have for Q&A for today. I would like to turn the call back to Mr. Carlos Ruiz Sacristan for final remarks.

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Carlos Ruiz Sacristan, Infraestructura Energetica Nova, S.A.B. de C.V. - Chairman, CEO [94]

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Well, thank you very much. Thanks for your questions. We will continue to focus on execution in order to be able to achieve our EBITDA guidance this year, and also we will continue to focus on our growth strategies, trying to bring new projects with our business model to the company. Thank you very much.

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Operator [95]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Have a wonderful day.