Another Canadian pension fund is buying a slice of a Spanish oil-transport giant, spotlighting the impact that some of the country's largest investors could have in energy infrastructure deals at home and abroad.
Borealis Infrastructure, a division of the Ontario Municipal Employees Retirement System, will be the second-largest investor in Spain's largest oil transport and storage company. The pension fund gathered up a 24.15-per-cent stake in Companía Logística de Hidrocarburos (CLH) through two recent deals, building out its investment footprint in Europe.
The deal came in two parts. However, Borealis didn't disclose what it paid to acquire a 9.15-per-cent stake from Spanish oil and gas company Companía Espanola de Petroleos SAU in January or for the 15-per-cent stake it bought from Global Infrastructure Partners, which is expected to close during the first quarter of 2016.
Not only is CLH a big player in Spain, providing services to most oil-product operators in the country, but its size is significant compared to global counterparts. The company owns more than 4,000 kilometres of pipelines, moving more than 33 million tons of product each year, and operates refineries and 40 storage locations on top of other facilities.
The largest Canadian pension funds have become major infrastructure investors and several of them rank among the top global players in the asset class. The 10 biggest Canadian pension funds have snapped up airports, toll roads and shipping ports around the world, drawn by the steady cash flows these assets can provide. These funds also have about $149-billion invested in real estate, infrastructure and private equity at home, too, according to research from Boston Consulting Group.
More energy infrastructure deals could lie ahead – particularly in Canada – as producers seek to ease financial burdens caused by low commodity prices by selling some assets.
"We believe Canadian pension funds (or management teams backed by a Canadian pension fund) can have a unique cost of capital advantage over other buyers where income tax considerations of the seller are important," Dirk Lever, an analyst at AltaCorp Capital, said in a recent note to clients. He said that by structuring the deal in a certain way, a Canadian pension fund could minimize the tax burden that would usually land on a seller in an asset sale. But he also expects the pension funds will face plenty of competition from other funds, companies and investors.
Some pension funds have already expressed interest in energy infrastructure opportunities. In late September, the Canada Pension Plan Investment Board formed a group to invest $1-billion in midstream energy infrastructure in the the Western Canada Sedimentary Basin, including pipelines and storage.
AltaCorp's Mr. Lever points out that there are currently some large assets on the table such as the Access Pipeline, owned in part by oil sands producer MEG Energy Corp. The company has been shopping its 50-per-cent stake in the pipeline with no results yet.
In the case of CLH, Canadian investor interest dates back long before the oil slump – Alberta Investment Management Corp. has a 5-per-cent stake it bought in 2009 and British Columbia Investment Management Corp. picked up a 5-per-cent interest in 2013. Other Canadians have previously invested – Enbridge sold a quarter stake in CLH for $1.36-billion in 2008.
In September, 2015, Spain's Repsol SA sold its 10-per-cent stake in CLH for €325-million ($500-million) as part of its strategy to sell off unneeded assets and reduce debt – an initiative that stemmed from its $8.3-billion (U.S.) deal to acquire Calgary-based Talisman Energy Inc. in late 2014. It was a competitive bidding process that included 150 potential investors, according to Repsol.
Based on the Repsol deal's purchase price, Borealis may have paid about €800-million ($1.2-billion Canadian) for its latest investment. OMERS declined to comment on the deal.