Byzantine energy M&A is dull-for-spicy swap trade

Sempra

23/09/2025 18:53

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

By Robert Cyran

NEW YORK, Sept 23 (Reuters Breakingviews) - Think of it as the Oprah Winfrey trade. Much as the talk-show host handed out extraordinary goodies to her ordinary audience, energy producer Sempra’s SRE.N complex deals announced Tuesday purport to give everyone something exciting. The $55 billion utility receives cash for electricity spending to feed artificial intelligence. Buyout firms KKR KKR.N and Blackstone BX.N get key assets for their private capital machines. The only snag is that the value of the gifts is uncertain, tied to evolving industry shifts.

First, Sempra. The firm provides gas and electricity through its utilities in California and Texas. Between a growing population in the Lone Star State, the reshoring of manufacturing, and – crucially – the seemingly endless hunger of data centers powering the AI boom, its systems need more capital expenditure. In February, the company increased its investment plan by 16%, penciling in $56 billion of spending by 2029. By selling 45% of Sempra Infrastructure Partners (SIP), a more speculative unit that develops and runs LNG export facilities and green power generation, the company gains $10 billion to help out with its exciting splurge on its regulated business.

KKR and partner Canada Pension Plan Investment Board are buying the stake in SIP.  U.S. LNG exports have boomed. Costs have remained low thanks in part to excess production, since gas is a byproduct of fracking for oil. Moreover, global demand is rising. That’s plenty tempting for KKR, which can put a substantial amount of cash to work in a relatively safe-looking business after an era starved for deals.

Finally, Blackstone and partners are chipping in about half of the $14 billion SIP needs to build out a new LNG export facility. Its capacity is committed to multi-decade contracts, according to a person familiar with the deal, so there’s little market risk. Long-term certainty is crucial, since the asset should also offer returns a bit above the mid-single-digit norm for investment-grade debt. That makes it a good fit to pass on to insurers, whose expansive balance sheets have driven a wave of growth for the likes of the buyout giant run by Steve Schwarzman.

All of this effectively transmutes a steady infrastructure business into capital and assets for much buzzier markets. Of course, the mega-trends each party is following aren’t guaranteed to pan out. A capital crunch in AI – whether because of uninspiring technological advancements or a breakdown in the industry’s circular dealings – would crimp power demand. Green energy’s rise, married with giant batteries, could ease the need for gas. It’s just easy to overlook when everyone seems to be getting what they want.

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CONTEXT NEWS

Sempra announced on September 23 that it had agreed to sell 45% of Sempra Infrastructure Partners, which builds and runs energy infrastructure, to affiliates of KKR and Canada Pension Plan Investment Board for $10 billion.  After closing, a KKR-led consortium will own 65% of SIP, Sempra will retain 25% and Abu Dhabi Investment Authority will own 10%.

Sempra will receive 47% of the cash on close, 41% by year-end 2027 and the remainder about seven years after closing.

Separately, SIP will advance the development of Port Arthur LNG Phase 2, a U.S.-based liquefaction facility. Half of the $14 billion needed will be provided by an equity investment led by Blackstone Credit & Insurance, together with an investor consortium including KKR, Apollo-managed funds and Goldman Sachs Alternatives. SIP will retain a 50.1% stake in the project.

US utilities face rapidly growing investment needs https://www.reuters.com/graphics/BRV-BRV/klpybrleavg/chart.png

(Editing by Jonathan Guilford; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))