AltaGas shares fall as it eyes $1.5 billion in asset sales

Investor distaste for buying equity means AltaGas Ltd.’s best option to fund future growth is selling assets, its founder and acting coCEO said Tuesday. The Calgarybased gas and power company announced it will sell assets to raise between $1.5 billion and $2 billion by the end of March, despite recently exceeding its earlier target of $2 billion in sales to pay down bridge financing needed to complete its $9-billion purchase of U.S. utility company WGL Holdings.

Changes in the market between when AltaGas announced it would buy WGL in January 2017 and when the purchase was completed about four months ago are responsible for the new strategy, said David Cornhill, the company’s founder, chairman and acting co-CEO.

“If you go back two years ago … people were supportive of growth. Today, people want … growth within that self-funding model,” he said on a conference call to discuss third-quarter results.

“We see the cheapest cost of capital right now as asset sales and we’re pursuing that because we think it’s the best way to longterm enhance shareholder value. We had contemplated $2 billion but we’re announcing almost $4 billion now, with the $2.4 billion already done ... That was not contemplated going into the plan.”

Washington, D.C.-based WGL supplies natural gas and electricity to more than one million customers in the District of Columbia, Maryland and Virginia.

Shares in AltaGas fell by as much as 17 per cent, or $3.44, to $16.43 per share on the Toronto Stock Exchange by Tuesday afternoon, a reaction analyst Patrick Kenny of National Bank Financial linked to its decision to cancel by year-end its premium dividend reinvestment plan that gave stockholders access to discount-priced shares.

The stock closed more than twice as high, at $33.32, on the day it announced it was buying WGL.

AltaGas will realize at least $874 million from the spinoff announced last week of its Canadian utilities and part of its renewable power assets into a separate company.

In September, it sold natural gas midstream and power generating assets in Canada and the U.S. to raise $560 million and, last June, it sold a 35 per cent stake in its northwest B.C. hydro power facilities for $922 million.

The company intends to sell more of its interest in the hydro portfolio, Cornhill said, pointing out that although it is one of its best assets, AltaGas is getting little recognition from the market for owning it.

Further detail on what is being sold and the company’s broader strategy going forward will be determined after a new permanent CEO is appointed in the next several weeks, he added.

The former CEO was David Harris, a key architect of the WGL acquisition, who agreed to resign in July following an unspecified “complaint” that was to be investigated by the board.

Delays in winning regulatory approval for the WGL deal meant seasonal and timing problems that resulted in lower-than-expected adjusted earnings for AltaGas in the quarter ended Sept. 30, the company said. It reported a net loss adjusted to remove unrealized and one-time costs of $17 million for the three months, compared with an adjusted net profit of $48 million in the year-earlier period.

Revenue jumped to $1.04 billion from $502 million in the third quarter of 2017.