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S&P downgrades Inter Pipeline on planned C$3.5B petchem project

S&P Global Ratings downgraded Inter Pipeline Ltd.'s outlook to negative from stable after it announced plans to build the C$3.5 billion Heartland Petrochemical Complex.

"The outlook revision reflects our view of the construction and execution risk given the long construction period, the large size, complexity and [Inter Pipeline's] limited track record in undertaking petrochemical projects," Tatenda Chirusa said in the Dec. 29 report. "We believe the credit metrics have limited cushion to absorb cost overruns or project delays should they occur during our two-year outlook period."

The project is an integrated propane dehydrogenation and polypropylene facility designed to convert locally sourced propane into 525,000 tonnes per year of polypropylene. It will be the first of its kind in Canada and the most expensive project tackled by Inter Pipeline, or IPL. The timeline for its construction is estimated to be about four years.

S&P Global Ratings generally considers petrochemicals a higher-risk industry compared to the company's traditional midstream business, which the ratings agency said could lead its business risk profile to deteriorate due to increased commodity exposure from uncontracted volumes. During the construction phase, the rating agency will continue to assess IPL's business risk profile as strong, reflecting stable cash flows from oil sands transportation, conventional oil pipeline and bulk liquids storage business segments.

The negative outlook also reflected what the rating agency projects to be about a 30% increase in commodity price exposure once the facility is operational.

S&P Global Ratings affirmed the company's BBB+ long-term corporate credit rating and senior unsecured notes issue-level rating and expects it to continue to have sound relationships with its banks, a high standing in the credit market, and overall adequate liquidity.

The ratings agency exempted IPL's subsidiary Inter Pipeline (Corridor) Inc. from the rating due to its limited-purpose operating status and because it is not strategically or operationally linked to other IPL pipelines.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.