TC Energy: CAD 5.2 Billion Joint Venture With GIP for Columbia Assets Looks Solid

TC Energy TRP announced it has agreed to sell a 40% interest in its Columbia Gas and Columbia Gulf assets to Global Infrastructure Partners, or GIP, for CAD 5.2 billion. These assets include more than 15,000 miles of gas assets in North America, largely underpinned by regulated rates that handle about 20% of U.S. LNG supply. The valuation at about 10.5 times 2023 EBITDA is very reasonable, as is the expected capital avoidance of $1.3 billion annually (GIP’s share of Columbia’s annual capital spending). As we had expected TC Energy to sell over CAD 5 billion in assets, our Canadian fair value estimate of CAD 63 per share is unchanged, while our USD fair value estimate is updated to $48 per share based on refreshed exchange rates. Our narrow moat rating is unchanged.

TC Energy has been working to execute this CAD 5 billion asset sale for some time. We had originally thought the deal would include oil or gas assets that were more clearly noncore. However, the Columbia assets are definitely more on the high end of the quality spectrum, but the valuation and expected capital avoidance more than offset the reduction in earnings from this quality collection of assets, in our view. In addition, as part of the transaction, TC Energy expects to recapitalize the new entity where the JV assets will be held, which could possibly yield interest expense savings or further debt reduction at the TC Energy level.