Calgary-based Enbridge Inc. ENB-T -0.74%decrease haslanded a $2.7-billion investment in the planned expansion of its British Columbia natural gas pipeline from two of the largest U.S. private equity funds, an example of the global commitment to Canadian infrastructure that Prime Minister Mark Carney is targeting at Canada’s investment summit next month.
New York-based KKR & Co. Inc. KKR-N +0.76%increase and Apollo Global Management Inc. APO-A-N +0.61%increase are buying a 29-per-cent stake in Enbridge’s Westcoast pipeline network, which connects natural gas fields in northern B.C. and Alberta to customers in the south of the provinces and northwestern U.S.
In April, Enbridge received government approval to extend the Westcoast pipeline by 139 kilometres. The projects, known as the Sunrise and Aspen expansions, are expected to cost $4-billion and be completed by the end of 2028. They will add 300 million cubic feet per day of natural gas transportation capacity to the system, which can move 3.8 billion cubic feet of gas each day.
“We are pleased to welcome KKR and Apollo as strategic partners,” said Pat Murray, Enbridge’s chief financial officer, in a press release. “This transaction allows us to efficiently recycle capital, strengthen our balance sheet, and maintain financial flexibility.”
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The Westcoast pipeline stretches more than 2,900 kilometres from northeast B.C. and northwest Alberta to the Canada-U.S. border near Chilliwack, B.C.
“This investment reflects our strategy of investing alongside leading operators in key infrastructure with stable, long-term cash flows and attractive growth opportunities,” said Paul Workman, a managing director at KKR, in a press release.
KKR and Apollo will begin receiving cash distributions from Westcoast when the Sunrise and Aspen projects are completed.
Enbridge will receive $700-million from the two fund mangers when the transaction closes. Bank of Nova Scotia analyst Robert Hope said the company will get the remainder of the cash in installments over the three years it takes to build the extensions.
Tapping KKR and Apollo shows Enbridge can “create additional flexibility to recycle capital from low-risk Canadian regulated assets into higher-return U.S. natural gas infrastructure and liquids pipeline opportunities,” Mr. Hope said.
On Wednesday, Enbridge announced it would buy crude oil infrastructure in Texas and New Mexico from Houston-based Salt Creek Midstream LLP for US$600-million.
Enbridge to buy Salt Creek Midstream assets for $600-million, expanding Permian Basin presence
The acquisition, which is expected to close by the end of the year, adds about 800 kilometres of pipelines and crude oil terminals to the Canadian company’s existing operations in the region. It will link an additional 20 producers to Enbridge’s Ingleside Energy Center on the Gulf coast, North America’s largest crude export terminal.
Enbridge’s sale of a minority stake in the Westcoast pipeline is similar in structure to a number of investments fund managers have made in infrastructure, including Rogers Communications Inc.’s $7-billion sale of an interest in its wireless network to a consortium made up of New York-based Blackstone Inc. and four domestic pension funds two years ago.
Sales of minority stakes in infrastructure allow companies like Enbridge or Rogers to raise cash while retaining operational control of their assets.
Enbridge has the right to repurchase KKR and Apollo’s interests at any time between the seventh and 14th year from the close of the transactions. Rogers has a similar arrangement with Blackstone.
KKR and Apollo executives are among the global fund managers expected to attend the Canada Investment Summit in Toronto in mid-September. The Prime Minister announced the summit in April as part of a strategy to attract more global investment in domestic projects. Mr. Carney aims to raise roughly $500-billion in investments from private-sector funds over the next five years.
The gathering of institutional investors who collectively oversee an estimated $120-trillion will take place as the Canadian and U.S. governments exchange salvos in a trade dispute.
Investment banks Morgan Stanley Canada Ltd. and TD Securities advised Enbridge on the Westcoast investment, along with law firms Sullivan & Cromwell LLP and McCarthy Tétrault LLP.
KKR’s bankers were at CIBC Capital Markets, while its legal advisers were Kirkland & Ellis LLP and Bennett Jones LLP. Scotiabank and law firm Milbank LLP advised Apollo.
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