Enbridge To Boost Divestments And Reduce Debt Burden

Enbridge Inc. ENB intends to expedite its divestment program for 2018, per Reuters. The company plans to divest CAD$8 billion ($6.4 billion) worth of assets. The number is more than double of its previous divestment goal.

Background

In November last year, the company stated that it has figured out CAD$10 billion worth of non-core assets. Of the total, the company expected to monetize at least CAD$3 billion in 2018 through the divestment of some unregulated midstream natural gas assets and onshore renewable operations.

Divestment Rationale

With growing pressure from the investors and rating firms, the company recently decided to boost the divestment program. Credit rating agencies Standard and Poor's Ratings Services (S&P) & Moody's Investors Service (Moody's) rated the company's debt as BBB+ and Baa3 — among the lower investment grade ratings. Any downgrade by the rating agencies will make the company's bond non investment grade. Hence, it is a serious matter of concern as Enbridge will not be able to raise debt capital in favorable terms for financing growth projects if there is a downgrade in credit ratings.

In the last few years, the company's debt increased strongly. Importantly, during the first nine months of 2017, long-term debt has risen more than 75% while cash balance declined 59%, reflecting weak financials. It has a long-term debt of CAD$61.4 billion and debt to capitalization ratio of 50.1%.

The company expects the divestment program to strengthen its balance sheet by fast debt reduction. The sale is also expected to increase its free cash flow and support its dividend hike program. Notably, the company has increased its annual dividend payout for more than 10 years.

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