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Copper Tip Energy

Enbridge Shares on the Rise as $1.2 Billion Share Sale Eases Funding Concerns

November 30, 2017 by Kevin Orland


Enbridge Inc., North America’s largest pipeline operator, posted its biggest stock surge in almost two years after a share sale and lowered dividend-growth forecast eased concerns about its ability to finance new projects.

The stock advanced as much as 8.3 percent to C$49.80 on Thursday in Toronto, the largest intraday gain since January 2016. Calgary-based Enbridge had slid 19 percent this year through Wednesday, compared with a 13 percent decline for the S&P/TSX energy index.

The gain comes a day after Enbridge announced plans to raise about C$1.5 billion ($1.2 billion) in a private share sale to pay down short-term debt and divest about C$10 billion in non-core assets. The company also tempered its forecast for dividend growth to a rate of 10 percent a year through 2020, down from earlier projections for a range of 10 percent to 12 percent.

The moves helped alleviate concerns about Enbridge’s ability to maintain a strong balance sheet amid C$22 billion in spending on capital projects through 2020. While analysts said the dividend change was a slight negative, investors had been bracing for a steeper cut after the company declined to comment on its payout policy during its third-quarter earnings call.

“We view this as a prudent, yet difficult decision,” Ian Gillies, an analyst at GMP FirstEnergy, said in a note Thursday. “Investor focus can now return to Enbridge’s significant capital program and execution of its business plan.”

Gillies upgraded his recommendation on the stock to buy from hold, and raised his target price to C$58 from C$54.

With its $28 billion acquisition of U.S. natural gas distributor Spectra Energy Corp. completed earlier this year, Enbridge now says it will concentrate on three core businesses of oil pipelines, gas pipelines and gas utilities. The sharper focus will result in Enbridge selling off at least C$3 billion in onshore renewables and unregulated gas midstream assets in 2018.

For its stock sale, three large institutional investors will buy about 33.5 million Enbridge shares for C$44.84 apiece, according to a statement Wednesday, representing a 3.5 percent discount to Tuesday’s closing price. The company also said it plans to issue an additional C$4 billion of hybrid securities through the end of 2018.

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