At TC Energy’s Annual General Meeting in Calgary, shareholders voted in favor of spinning off the Canadian company’s liquids pipeline activities. This strategic decision will create a new energy infrastructure company, South Bow Corp, whose assets include the Keystone pipeline.
A beneficial spin-off for both entities
According to TC Energy CEO Francois Poirier, the demerger will enable both companies to maximize the value of their respective assets. Each entity will be able to focus on its own strategies and opportunities. This will enable TC Energy to reduce its high level of debt and focus on other projects in the pipeline. natural gas transport. South Bow Corp will inherit a network of nearly 4,900 kilometers of liquids pipelines linking oil supplies from Alberta and parts of the U.S. to refining markets in Illinois, Oklahoma and Texas. Its flagship asset will be the Keystone pipeline, a major export conduit for Canadian crude oil, with a capacity of 622,000 barrels per day.
Challenges ahead for South Bow Corp
However, South Bow Corp will have to deal with a substantial debt of C$7.9 billion (US$5.78 billion) inherited from TC Energy. The new entity will also face competition from other pipeline companies seeking to expand their shipments to the US Gulf Coast market. According to BMO Capital Markets analyst Ben Pham, South Bow’s narrow asset base and lower growth forecasts than TC Energy could also weigh on its valuation. However, the new company will benefit from long-term shipping contracts covering 94% of Keystone’s capacity, thus guaranteeing revenues.
A smooth transition
Bevin Wirzba, TC Energy’s Executive Vice President of Liquids Pipelines, is set to become the new CEO of South Bow Corp. He stated that the two companies will legally separate in the fall, and that South Bow will be listed on the Toronto and New York stock exchanges. Prior to its decision to spin off its liquids pipeline business, TC Energy had been in discussions with two separate energy infrastructure companies regarding the creation of a new joint venture entity, according to a TC management information circular issued in April. Robert Hope, analyst at Scotiabank, believes that this implies that South Bow could be considered as an acquisition candidate when it starts trading on the stock exchange.
