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To market, to market … with success: C$1.5B for TC, Enbridge
TransCanada and Enbridge, Canada’s two largest energy pipeline companies, have pulled a rabbit out of the hat.
In the thick of the worst financial turmoil in recent memory they have raised a combined C$1.5 billion from the debt and equity markets — some proof that companies are prepared to take a bullish long-term view of energy prices and that investors are willing to buy into new energy issues that offer security and income from dividends.
“It’s incredibly encouraging to see them raise that kind of money in this kind of environment,” said David Baskin, president of Toronto-based Baskin Financial Services.
Commenting specifically on TransCanada, he said the company offers solid dividends and is recession resistant.
That view has been reinforced by the 14 analysts who follow TransCanada shares, with 10 rating it a “buy” and four recommending a “hold.”
TransCanada completed a C$1 billion equity offering in only eight days and Enbridge raised C$500 million of debt in two tranches. Both have earmarked the bulk of the proceeds for pipeline projects from the Alberta oil sands to United States markets.
Also new bank facility In addition to its share offering, TransCanada closed a new US$950 million committed bank facility to fund expenditures for its planned US$12 billion Keystone pipeline, destined to deliver 590,000 barrels per day of oil sands production from Alberta to Oklahoma and 500,000 bpd from Oklahoma to U.S. Gulf Coast refineries.
TransCanada sold 30.5 million common shares for C$33 each to a syndicate of investment banks led by RBC Dominion Securities, BMO Nesbitt Burns and TD Securities, C$8 per share below the analysts’ average 12-month target.
The offering came six months after the utility sold C$1.27 billion of stock to cover its purchase of Ravenswood Generating Facility, a New York City power plant, and a C$1.5 billion offering last year to fund the acquisition of American Natural Resources Co.
Despite an initial 5 percent dilution of TransCanada shares accompanying the latest equity issue, TransCanada is now strongly placed to finance its current growth initiatives, said UBS Securities analyst Grant Hofer.
He forecasts the company’s debt-to-capital ratios will peak at 49 percent in 2011, then ease back to 40 percent by 2013.
In addition, Hofer noted there are equity positions outstanding that would allow shippers to acquire up to 15 percent of the Keystone system, reducing TransCanada’s commitments by more than C$1.5 billion.
Stephen Paget, an analyst with FirstEnergy Capital, said the attraction for TransCanada investors is the chance to find safety from a pipeline and infrastructure company that is not commodity-price based and has long-term backing.
He said TransCanada is a “safe option in tough times by being both conservative and transparent about its financing needs.”
Paget said the pipeline companies are generally conservative in what they do.
“It’s a way to play energy without the commodity price risk, a way to play dividends and the companies represent hard assets,” he said.
Enbridge expanding Enbridge, in the midst of a C$12 billion expansion program to boost its oil sands shipments to the U.S., also has C$3 billion in untapped credit lines, which it says will “enable us to bridge through any period of capital market disruption.”
Chief Financial Officer Richard Bird said “this level of liquidity is sufficient to more than absorb the capital markets funding requirements of our commercially secured development projects over the next five years.”
He said Enbridge’s ability to complete its issuances “in these uncertain capital markets and the low coupons associated with the debt (C$300 million in 10-year corporate debt carrying a 6.62 percent coupon and C$200 million carrying a 5.57 percent coupon), highlight Enbridge’s financial strength.”
Following the lead of TransCanada and Enbridge, Keyera Facilities Income Fund, which operates gas gathering and processing facilities in Alberta and Saskatchewan, raised C$80 million in November through an issue of convertible debentures carrying a coupon of 8.25 percent.
Oilexco scuttles plans What these companies have pulled off lends weight to a recent International Energy Agency report warning that delays in proceeding with energy-related infrastructure projects will create problems in both the developed and developing worlds.
But there’s a danger in reading too much into these success stories, as Oilexco, a Calgary-based explorer operating in the British North Sea, discovered.
It announced in late November that it was scuttling plans to raise up to C$150 million in five-year convertible debentures carrying a 15 percent coupon and issuing 20 million shares.
The company, whose shares have slumped almost 90 percent in value over the past five months, said the plan was abandoned because the offering was “determined (in current market conditions) to be overly dilutive to shareholders and does not reflect the value of the company’s assets.”
Oliexco said it has hired Morgan Stanley to explore strategic alternatives, including “mezzanine and debt financing, industry and financial partnerships together with other financing alternatives,” but was emphatic it is not up for sale.
—Gary Park
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