TC Energy shareholders voted in favour of spinning off the Canadian company’s liquids pipeline business on Tuesday, creating a new energy infrastructure firm known as South Bow Corp whose assets include the Keystone oil pipeline.
The spin-off will help Calgary-based TC lower its high debt load and focus on moving natural gas.
South Bow’s assets consist of nearly 4,900 kilometres of liquids pipelines that connect oil supply in Alberta and parts of the United States to refining markets in Illinois, Oklahoma and Texas.
Its signature asset is the 622,000 barrel per day Keystone pipeline, a key export conduit for Canadian crude.
The new company will carry a high debt load of C$7.9 billion ($5.78 billion) due to TC and faces competition from other pipeline companies looking to expand shipments to the U.S. Gulf Coast market.
BMO Capital Markets analyst Ben Pham said South Bow’s narrow asset base and lower growth forecast than TC could also weigh on its valuation.
However South Bow will benefit from long-term shipping contracts covering 94% of capacity on Keystone, providing guaranteed revenues.
Before deciding to spin off its liquids pipeline business TC held discussions with two separate energy infrastructure companies about setting up a new joint venture entity, according to a TC management information circular released in April.
“This implies that South Bow could be viewed as a takeout candidate when it starts trading,” Scotiabank analyst Robert Hope said in a note to clients.
(Reporting by Nia Williams in British Columbia; Editing by Chizu Nomiyama)