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C$4.3B from asset sale 'icing on the cake' as Enbridge keeps raising cash

Enbridge Inc.'s C$4.31 billion deal to sell gas gathering and processing assets to investment manager Brookfield Infrastructure Partners LP garnered applause from analysts as the energy pipeline giant transforms into a pure-play regulated business.

Enbridge announced July 4 that it will offload its Canadian natural gas gathering and processing business in British Columbia and Alberta, including 19 gas processing plants and liquids handling facilities with 3.3 Bcf/d of total operating capacity and 3,550 kilometers of gas gathering pipelines. The transaction, in addition to a May agreement by subsidiary Enbridge (US) Inc. to sell U.S. midstream natural gas and liquids business Midcoast Operating LP, is part of Enbridge's strategy to raise cash to cover all of the company's capital needs through 2020.

"With Enbridge already having met its [C$3 billion] asset sale target for 2018 with the previously announced U.S. midstream and select renewable power sales, we see the Canadian midstream sale as the icing on the cake," analysts at RBC Capital Markets wrote in a July 5 note to clients.

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Enbridge's asset sales for 2018 now add up to C$7.5 billion out of the C$10 billion total planned, thanks in part to a higher-than-expected price for the gathering and processing facilities. The deal has an implied value of 12x to 13x EBITDA, compared to an expected multiple of 10x to 11x, according to analysts at energy investment bank Tudor Pickering Holt & Co.

Combined with the Minnesota Public Utilities Commission's approval of Enbridge's Line 3 crude oil pipeline replacement project and a proposal to roll up the midstream heavyweight's U.S. energy pipeline partnerships, they added in an investor note July 5, the recent asset sales are boosting the company's stock back to "premium valuation."

CBRE Clarion Securities equity analyst Hinds Howard made note of the fact that the private-equity-backed Brookfield bought the gathering and processing assets, saying public Canadian pipeline companies would have also had reasons for investing in them.

"The assets ... would have been strategic fit for [Pembina Pipeline Corp.], and its stock seemed to reflect some overhang/speculation that they would reach for it," he said in a July 4 tweet. "[They] also could have been a use for free capital of [Kinder Morgan Canada Ltd.]."

The Canadian government on May 29 announced an agreement to purchase the Trans Mountain oil sands pipeline system from the Kinder Morgan subsidiary for C$4.5 billion.

Enbridge shares rose less than 1% on July 4 to settle at C$46.84 on the Toronto Stock Exchange.