TC Energy sells 40 per cent stake in Columbia gas business for $5.2-billion

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TC Energy Corp. TRP-T will sell 40 per cent of its two massive Columbia gas transmission systems in the United States to New York-based Global Infrastructure Partners (GIP) for $5.2-billion, a deal that analysts say will help shore up TC’s balance sheet.

The deal is the first in a $5-billion-plus divestiture program that Calgary-based TC announced last fall. Under the plan, the company aims to sell off its non-core assets and minority interests to help fund its expansion goals without accruing large amounts of debt. That includes the Coastal GasLink pipeline in British Columbia, which has an expected cost that has surged more than 130 per cent since the original 2018 estimate of $6.2-billion.

Analysts at RBC Capital Markets said the deal with GIP announced Monday would take a “sizeable chunk” out of TC’s asset monetization program. Though the valuation of the deal was slightly below expected, they said they expect TC to announce more sales in the coming months.

BMO Capital Markets analyst Ben Pham said, “While the headline valuation is likely underwhelming, the deal shores up the balance sheet.”

Indeed, TC acquired Houston-based Columbia Pipeline Group Inc. – including the pipeline systems – for US$10.2-billion in 2016 (then $13.4-billion) back when the Canadian company was still TransCanada Corp. That deal made TransCanada one of the continent’s largest regulated natural gas pipeline companies.

The new deal’s price tag will likely be raised by analysts on Friday, when TC is scheduled to hold a conference call about its second-quarter financial results.

Fitch Ratings had assigned TC a stable credit rating in March based on assumptions about the divestiture program. It said Monday that the agreement with GIP would have a neutral effect on TC’s credit quality, and expects that sales proceeds will facilitate debt reduction this year.

TC’s president and chief executive officer, François Poirier, said in a statement that Monday’s announcement represented a “major milestone” in achieving the company’s 2023 strategic priorities and delivering on its asset divestiture program ahead of its year-end target.

Mr. Poirier added that TC continues to “evaluate opportunities to further our deleveraging objectives.”

The Columbia Transmission System extends from New York State to the Midwest and U.S. southeast, and it links natural gas basins with major markets, according to TC’s website. It includes 18,768 kilometres of pipelines and dozens of storage fields covering 10 states.

Columbia Gulf Transmission pipeline stretches 5,419 km. It connects to virtually every major pipeline in the U.S. Gulf Coast and to various lines in the Midwest.

Together, the two Columbia networks deliver a substantial portion of daily U.S. natural gas demand, including approximately 20 per cent of U.S. liquefied natural gas export supply, according to TC.

The deal announced Monday will see TC continue to operate the systems, and jointly invest with GIP in annual maintenance and modernization to further enhance system capacity and reliability.

GIP is one of the world’s largest infrastructure fund investors. It currently manages US$100-billion in assets, according to its website. Last month, the firm partnered with France’s TotalEnergies SE and Houston-based NextDecade Corp. to become a majority investor in Phase 1 of Rio Grande LNG Project, a proposed LNG export terminal in Texas.

Bayo Ogunlesi, GIP’s chairman and CEO, said in a statement that the deal with TC would leverage the combined assets and capabilities of the two companies “to serve growing market needs for cleaner fuels, energy security and energy affordability.”

The deal is expected to close in the fourth quarter of 2023.

With a report from Reuters