TC Energy to spin off pipeline business

TC Energy Corp. TRP-T shareholders voted Tuesday to spin off the company’s liquids pipeline business into another company, creating a new energy infrastructure firm called South Bow Corp.

Calgary-based TC Energy will be separated into two independent, publicly listed companies under the change. One will still be called TC Energy, and will oversee the company’s natural gas pipelines, storage and power businesses. The other, South Bow, will control the liquids infrastructure side of operations, including the company’s 4,900-kilometre pipeline network.

TC Energy president and chief executive, François Poirier, said Tuesday at the company’s annual meeting that the move would give each entity the ability to focus on their distinct strategies and opportunities.

As independent companies, TC Energy and South Bow will have separate balance sheets, giving them independent access to capital markets.

The spinoff is a result of reviews of the company’s liquids pipelines business dating back to November, 2020, according to TC Energy’s information circular.

That’s when management initiated a review of strategic alternatives for TC’s liquids pipelines business, including scenarios with and without Keystone XL – a planned $11.5-billion pipeline designed to ship up to 830,000 barrels of crude a day from Hardisty, Alta., to Steele City, Neb.

At the time, TC Energy’s liquids business was set to grow after the Alberta government invested US$1.1-billion in the pipeline. But the company scuttled the project after U.S. President Joe Biden revoked Keystone’s permit in January, 2021.

TC Energy initially pursued a full or part sale of its liquids pipelines business. It solicited interest from prospective buyers late 2022 and early 2023, holding presentations in its office in Houston.

But preliminary investor interest, asset valuations and the tax implications of a potential transaction had management rethinking that plan. It determined a sale wouldn’t maximize value to shareholders.

TC Energy instead proposed the split last summer, as it stared down an unsustainable debt load, with few foreseeable catalysts to alleviate the burden.

Only days earlier, it said it would sell 40 per cent of its two massive Columbia gas transmission systems in the United States to New York-based Global Infrastructure Partners for $5.2-billion to help shore up its balance sheet. The Columbia deal was the first in a program that TC Energy announced in fall 2022 to sell off its non-core assets and minority interests, thus helping fund expansion goals without accruing large amounts of debt.

Management called the spinoff proposal at “monumental moment,” but markets did not react well. The company’s share-price slump accelerated as analysts questioned the very purpose of the reorganization, because it did little to lower the company’s debt burden in the near future.

TC Energy’s share price on the Toronto Stock Exchange ticked up slightly on the news of the shareholder vote Tuesday to $52.79.

The company expects the spinoff to come into effect later this year.