Pipeline sector rides recovery

DEBT ISSUANCE

some of the bigger guys with the balance sheets starting to spend again,” said Chris Kresic, portfolio manager in Toronto at Jarislowsky Fraser Ltd., which has C$6.5 billion in fixed-income assets.

“That’s obviously a sign of confidence in the industry.”

Some high-grade producers did tap the bond markets in the second half of last year, but those were for maintenance and refinancing, as opposed to new growth, Pandori said.

Select large energy companies began announcing expansion projects at the end of last year.

“They’ve taken a lot of steps, to the industry’s credit, to make sure that their balance sheets are in order, they’re not getting downgraded below investment grade,” he said.

Producers were taking advance of borrowing costs that had narrowed significantly since February.

TransCanada spokesman Mark Cooper declined by email to comment.

Enbridge spokeswoman Suzanne Wilton declined by email to speak specifically to Line 3, but noted that the project was part of a growth program that still had outstanding capital requirements that will be funded with debt and equity.

Cost of capital is a “significant determinant” in when and where Enbridge chooses to fund from, she said.

Doug Bertsch, North West Redwater’s vice-president of regulatory and stakeholder affairs, confirmed through a spokeswoman that the partnership expects to issue Canadian-dollar debt this year, and monitors for market conditions that may affect timing and amount issued.

Surer signs of health in the energy industry would see explorers and producers ramping up along with the infrastructure companies, which will need to fill their pipes with something.

It’s still too early to see much spending beyond the healthy, investment-grade producers, Jarislowsky Fraser’s Kresic said.

“Even if the price goes back to $60 a barrel, it’ll be tough for the amount of financing that was done before to reach those levels again any time soon,” he said.

Energy companies have also seen stock prices stage a dramatic recovery through 2016, leading the S&P/TSX Composite Index to the best performance among 24 developed markets.

Given the recent jump in interest rates, companies are more likely to head to the equity market this year for financing, according to Rafi Tahmazian at Canoe Financial LP.

“My inclination would be that debt’s a tougher game to play now,” Tahmazian, senior portfolio manager in Calgary for Canoe, which has $1 billion in energy assets, said by phone.

With the oil recovery, a better U.S. economic outlook and a need for pipeline capacity in Canada, Kresic sees a window for infrastructure companies looking to finish projects started years ago.

“They’ll still be coming to market,” he said.

“Debt is cheap overall.”