Utility company Fortis has an agreement that will see Singapore’s sovereign wealth fund take a minority stake in ITC Holdings Corp. for $1.228-billion in cash.Tim Fraser/The Globe and Mail
Singapore's sovereign wealth fund GIC Pte agreed to buy 19.9 per cent of ITC Holdings Corp. from Fortis Inc. of St. John's for $1.23-billion (U.S.) in cash in one of the biggest investments Asian companies have made in U.S. power lines operators.
The transaction allows Fortis to keep an investment-grade credit rating, according to a statement by the three companies on Wednesday. Fortis, Canada's largest utility owner, agreed in February to buy ITC for $6.9 billion in cash and stock. Shortly afterward, it said it would reach out to investors to gauge interest in selling a minority stake to help fund the cash portion.
The price meets expectations, enabling Fortis to proceed with a plan to issue $2-billion of debt to complete the ITC takeover, Stacy Nemeroff, an analyst at Bloomberg Intelligence, said by e-mail.
"It removes an overhang from Fortis's stock price a little bit," Andrew Smith, a St. Louis-based analyst for Edward D. Jones & Co. who rates Fortis at buy and owns none, said by phone Wednesday.
GIC's U.S. investments accounted for the biggest geographic share of its portfolio at 34 per cent last year. It purchased a stake in Oncor Electric Delivery Co., the owner of the biggest transmission network in Texas, along with Canadian investors in 2008.
The entry of GIC to the deal would extend a U.S. review of a foreign takeover to 75 days from 30, Katie Bays, an analyst at Height Analytics LLC, said by e-mail. "It's not terribly unusual to see an Asian investor involved in U.S. infrastructure," Ms. Bays said. "GIC, in particular, has something of a track record of investing in U.S. and North American infrastructure projects."
The $1.23-billion that GIC has agreed to pay for its stake represents a discount of about 7.5 per cent to ITC's current market value, according to data compiled by Bloomberg. Fortis, based in St. John's, Newfoundland, rose 0.6 per cent to $40.39 (Canadian) at 10:18 a.m. in Toronto. ITC, based in Novi, Michigan, increased 0.2 per cent.
The price may dampen some enthusiasm among investors as it means the acquisition won't increase earnings per share for Fortis until 2018, Darryl McCoubrey, a Toronto-based analyst for Veritas Investment Research Corp., said by phone. He rates Fortis a buy and owns none.