Sempra to Sell Assets as Utilities Raise Money for AI Boom

(Bloomberg) -- US energy company Sempra is planning to sell some natural gas assets as utilities rush to raise capital ahead of an expected boom for electricity demand.

In a bid to “simplify the company’s portfolio” and support strong growth for its Texas and California utilities, Sempra intends to divest a Mexican fuel distributor and sell a minority stake in its liquefied natural gas business, Sempra Infrastructure Partners, according to a statement Monday.

The move comes as US power companies seek to raise capital to build and fortify energy infrastructure. Demand is expected to surge in coming years as new data centers get built to run artificial intelligence. Use is also expected to climb as more factories come online and amid the overall electrification of the economy. American Electric Power Co. last week said it was offering $2 billion in shares of its common stock.

Sempra has told investors that growing power demand in Texas requires a significant amount of new infrastructure. The five-year capital plan for its Texas utility Oncor is now $36 billion, a 50% increase over last year’s plan.

“As we load in the Texas growth, which was higher than we anticipated in even November or December, that’s having us increase interest at the parent to fund all this growth,” Chief Financial Officer Karen Sedgwick said on an earnings call late last month. 

Guggenheim analysts said in a note Monday that the proposed asset sales could raise funds for Sempra to invest in Texas. “Given their opportunities to deploy capital in other sectors of their business, it doesn’t surprise me that they’re monetizing some assets,” said Paul Patterson, a utility analyst for Glenrock Associates LLC. 

Sempra’s stock suffered a record 26% one-day crash on Feb. 25 after the energy provider cut its full-year earnings forecast, citing a decision by California regulators to limit a rate hike. Jefferies analysts have questioned whether an activist investor will emerge, noting the 2018 campaign by Elliott Management Corp. and Bluescape Resources Co. to advocate portfolio changes. 

“Most investors we speak to are negative on the company but are optimistic on activism option value,” Jefferies analysts wrote in a note early Monday, before the planned asset sales were disclosed. 

Sempra rose as much as 1.1% in New York on Monday. The stock is trading at a discount of more than 20% to the broader utility index, on a price-to-earnings basis. 

Sempra Chief Executive Officer Jeff Martin flagged the potential for asset sales during the company’s February earnings call. The company expects to close the transactions within 12 to 18 months.

The Mexican gas distributor, Ecogas Mexico, serves more than 600,000 homes and businesses in the Mexicali, Chihuahua and La Laguna-Durango regions. It holds three utility franchises and has more than 5,000 kilometers (3,100 miles) of pipelines.

Sempra created Sempra Infrastructure Partners in 2021 through the consolidation of its liquefied natural gas business and Mexican IEnova unit. It sold a 20% stake in the business to KKR & Co. for $3.37 billion in 2021 and 10% stake to the Abu Dhabi Investment Authority for about $1.8 billion in 2022.

(An AI summary previously at the top of the story was removed for misstating when Sempra’s stock crashed.)

(Story updates with additional background and context starting in second paragraph)

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