Enbridge (TSE:ENB), Canada's largest oil pipeline company, reached a long anticipated deal to transfer some of its Canadian pipeline and renewable energy assets to Enbridge Income Fund (TSE:ENF).
The move was geared at raising cash for Enbridge and a stream of earning properties for its income fund.
The transaction is valued at $30.4 billion and involves transferring $18.7 billion of equity from to Enbridge Income Fund, the Calgary, Alberta-based company said in a statement today. Enbridge would then control 90 percent of the fund.
Enbridge said the deal provides a low-cost source of capital. It also expects to increase its earnings per share by 10 percent per year on average from 2015 to 2018.
Enbridge said that in addition to dividend growth, the move would improve its funding costs for new projects and in turn drive its growth initiatives beyond 2018.
Enbridge wants to build the ambitious and controversial Northern Gateway pipeline that would take oil from Alberta’s oil sands to a Pacific coast port in British Columbia.
Enbridge Income Fund, which is operated by Enbridge, already holds a diversified portfolio of energy transportation and power generation businesses.
“We are very pleased to have reached an agreement with the Fund on what we believe is truly a win-win transaction,” Enbridge chief executive officer Al Monaco said in a statement.
Enbridge will receive upon closing C$18.7 billion worth of units in the Fund, comprised of C$3 billion of Fund units, along with C$15.7 billion of equity units of Enbridge Income Partners L.P., an indirect subsidiary of the Fund. The Fund is also going to assume C$11.7 billion of debt, linked to the assets being transferred.
The deal to transfer the assets is expected to close in August.
In December, Enbridge Energy outlined plans to transfer ownership of the assets and boost its dividend by 33 per cent. Enbridge Energy said it now expects average per-share dividend growth of 14 percent to 16 percent from 2016 through 2018.
Some energy companies in the U.S. have moved to drop down their assets into tax-advantaged entities to please investors.
And Enbridge's Canada-based rival, TransCanada Corp., has also faced investor pressure to undertake such transactions to help boost its shares. TransCanada last year sold 30% of Bison Pipeline LLC to an affiliated master limited partnership and signaled it would pursue other drop-down moves to help fund its sizable capital program.