TransCanada Corp. plans to sell as much as 49 percent of its five Mexico natural gas pipelines to a passive partner to help pay for the $10.2 billion purchase of Columbia Pipeline Group Inc.
TransCanada is “refinancing” its Mexican business to raise funds after agreeing to buy Columbia Pipeline Group, its biggest-ever acquisition, on March 17, Robert Jones, TransCanada’s Mexico country chief, said in a phone interview from Calgary. The sale of the stake, which is expected to be completed this year, will not affect the company’s future development and pipeline bidding plans in Mexico, he said.
“What we’re going to do is sell up to 49 percent to a passive investor or financial investor,” Jones said. “It will have no impact in our ability to finish the projects we are constructing.”
The sale of a stake in the Mexican pipelines could generate $2 billion in proceeds, according to an estimate by Faisel Khan, a Citigroup Global Markets Inc. analyst based in New York. The entire Mexico pipeline business could be worth $5.8 billion, Khan wrote in a research note on Wednesday.
Together with an estimated $4 billion from the sale of TransCanada’s U.S. power generation assets, also being divested to help fund the Columbia Pipeline takeover, the deals could amount to as much as $6 billion, according to Khan.
TransCanada is yet to select an adviser to assist with the stake sale and anticipates the interested buyers will be strictly financial partners, such as private equity funds, Jones said. The company has already received inquiries from several potential buyers, he said.
Private-equity investors and pension funds would be drawn to TransCanada’s Mexico business because it provides stable cash flow generation, backed by long-term contracts with limited or no commodity exposure, said Rebecca Hazan, a Toronto-based associate portfolio manager at Leon Frazer & Associates Inc., which holds TransCanada shares.
“They often look for these type of lower-risk, lower-reward type of investments” Hazan said on Wednesday in an e-mail.