Enbridge lands $2.7-billion investment from KKR, Apollo in B.C. pipeline expansion

Calgary-based Enbridge Inc. ENB-T landed a $2.7-billion investment in the planned expansion of its British Columbia natural gas pipeline network from two of the largest U.S. private equity fund managers, an example of the infrastructure commitments Prime Minister Mark Carney is targeting at next month’s investment summit.

New York-based KKR & Co. Inc. and Apollo Global Management Inc. are buying a 29 per cent stake in Enbridge’s Westcoast pipeline network, which connects natural gas fields in northern B.C. and Alberta to customers in the south of the provinces and northwestern U.S.

In April, Enbridge received government approval to extend the Westcoast pipeline by 139 kilometres. The project, known as the Sunrise and Aspen expansions, is expected to cost $4-billion and be completed by the end of 2028. It will add 300 million cubic feet per day of natural gas transportation capacity to the system.

“We are pleased to welcome KKR and Apollo as strategic partners,” said Pat Murray, Enbridge’s chief financial officer, in a press release. “This transaction allows us to efficiently recycle capital, strengthen our balance sheet, and maintain financial flexibility.”

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The Westcoast pipeline stretches more than 2,900 kilometres from northeast B.C. and northwest Alberta to the Canada-U.S. border near Chilliwack, B.C.

KKR and Apollo will begin receiving cash distributions from Westcoast when the Sunrise and Aspen projects are completed.

Enbridge’s sale of a minority stake in its pipelines is similar in structure to a number of investments fund managers have made in infrastructure, including Rogers Communications Inc.’s $7-billion sale of an interest in its wireless network to a consortium made up of New York-based Blackstone Inc. and four domestic pension funds two years ago.

Enbridge will retain operational control of the Westcoast system and oversee construction of the extensions. The company has the right to repurchase KKR and Apollo’s interests at any time between the seventh and fourteenth year following the close of the transactions.

“This investment reflects our strategy of investing alongside leading operators in key infrastructure with stable, long-term cash flows and attractive growth opportunities,” said Paul Workman, a managing director at KKR, in a press release.

KKR and Apollo executives are among the global fund managers expected to attend the Canada Investment Summit in Toronto in mid-September. Prime Minister Mark Carney announced the summit in April as part of a strategy to attract more global investment in domestic projects.

The summit is part of Mr. Carney’s pitch to attract roughly $500-billion in investments from private sector funds over the next five years. The gathering of institutional investors, who collectively oversee an estimated $120-trillion, will take place as the Canadian and U.S. governments exchange salvos in a trade dispute.

Investment banks Morgan Stanley Canada Ltd. and TD Securities advised Enbridge on the Westcoast investment, along with law firms Sullivan & Cromwell LLP and McCarthy Tétrault LLP.

KKR’s bankers were at CIBC Capital Markets, while its legal advisers were Kirkland & Ellis LLP and Bennett Jones LLP. Scotiabank and law firm Milbank LLP advised Apollo.