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TC Energy to Earn $600M From Stake Sale in Coastal GasLink

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TC Energy Corporation TRP recently announced a deal wherein it will divest its 65% stake in the Coastal GasLink Pipeline Project (Coastal GasLink or the Project). Per the agreement, TC Energy will be offloading the interest to private equity company KKR & Co. Inc. KKR and Canadian fund manager Alberta Investment Management Corporation (AIMCo) on behalf of certain AIMCo clients.

Simultaneously with this sale, Coastal GasLink is envisioned to acquire financing from a syndicate of banks with the intention of funding up to 80% of the project during construction.

The company’s worth $30-billion capital program will be partly backed by the divestiture of the Coastal GasLink pipeline. Moreover, the deal will help maximize its shareholder value.

Coastal GasLink is designed to be a 670-kilometer long pipeline, stretching from north eastern B.C. to LNG Canada’s export terminal in Kitimat. The pipeline with an intended initial capacity of 2.1 billion cubic feet per day is projected to supply natural gas to the Royal Dutch Shell’s (RDS.A - Free Report) $40-billion LNG Canada project.

Upon closure of this divestment, the company is looking forward to gain $600 million comprising the gain on sale, required revaluation of residual ownership interest to fair market value and recognition of previously unrecorded tax benefits.

The deal is expected to be completed in the first half of 2020 following which, TC Energy will own 35% stake in Costal GasLink wherein it will reach an agreement for construction and operation of pipelines by limited partnerships. The deal is subject to customary closing conditions including regulatory approvals.

TC Energy is also committed by contract to coordinate with the 20 First Nations – groups of Canadian natives who reside along the length of the proposed pipeline – that collaborated with Coastal GasLink for providing the nations with an opportunity to invest in the project. Evidently, along with this sell-off, the company will offer the First Nations an option to buy a 10% equity interest in Coastal GasLink on similar terms.

Zacks Rank & Key Pick

TC Energy currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the energy space is Kosmos Energy Ltd. KOS, carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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