MONTREAL – SNC-Lavalin is selling a stake in one of its largest infrastructure investments by seeking to partially unload AltaLink, which owns more than half of Alberta’s electricity transmission grid.
The company, which has been reducing its investments in infrastructure assets, said Monday all options for AltaLink will be considered including a private sale, strategic alternatives or turning to the public market.
“Through the company’s expertise in Transmission & Distribution project development, AltaLink has become a unique asset that has achieved the strategic objectives necessary to offer value to new investors, whether public shareholders or financial or strategic partners,” SNC president and CEO Robert Card said.
AltaLink operates about 12,000 kilometres of transmission lines and 280 substations in the province, serving about 85 per cent of the population.
It also received regulatory approval in December for a $1.5-billion transmission line extension to run 350 kilometres from Genessee, west of Edmonton, southward to Langdon, east of Calgary.
Card said that the AltaLink’s ongoing expansion plan will continue. Industry observers believe the Montreal-based engineering giant will need to make $600 million to $1 billion in capital investments over the next three years to fund its growth.
SNC-Lavalin’s infrastructure portfolio also includes the Highway 407 toll road near Toronto, a Montreal hospital and the Montreal symphony hall.
Earlier this year, the company signed a deal to sell 66 per cent of its minority interest in Astoria Project Partners II LLC, which owns and operates the gas-fired Astoria II power plant in New York City. It also invested in Ottawa’s first-ever light rail transit system as part of the Rideau Transit Group Partnership.
“This announcement represents a significant advancement of our plan to rebalance our portfolio of infrastructure concessions to build value for our company,” added Gerry Grigoropoulos, executive vice-president infrastructure concession investments.
SNC-Lavalin announced in May that it is targeting growth in the resources sector, including oil and gas, mining and metallurgy, and environment and water.
Analysts applauded the announcement, suggesting AltaLink is worth upwards of $1.5 billion, or about $10 per share. That’s equivalent to nearly a quarter of SNC-Lavalin’s (TSX:SNC) trading price, which gained 66 cents at $42.01 Monday morning trading on the Toronto Stock Exchange.
Analyst Frederic Bastien of Raymond James said the value, which he pegged at $9.20, is up 31 per cent from his estimate of $7 per share a year earlier.
“Monetizing part of AltaLink, SNC’s fastest growing infrastructure concession investment, makes sense to us as it should allow the engineering firm to free up cash to fund its expansion (while retaining ownership control),” he wrote in a report.
“It is also aligned with SNC’s strategy to rebalance its portfolio of infrastructure concessions to build shareholder value.”
Analyst Pierre Lacroix of Desjardins Capital Markets expects SNC-Lavalin will likely sell 20- to 25 per cent of AltaLink.
“We believe that monetizing a portion of SNC’s interest in AltaLink represents a catalyst for the shares, especially given that the current share price does not reflect the full value of AltaLink,” he wrote.
Analyst Maxim Sytchev of Dundee Securities said a sale to strategic or passive (pension fund) investors is preferable to a spin-off. He said many investors had thought SNC-Lavalin would wait until it the resolved ethical issues it faces before it moved on AltaLink.
“Management is clearly telegraphing to the market that there is no need to be overly conservative from that perspective,” he said, noting that preserving its balance sheet and selling when interest rates are historically low “makes a ton of sense to us.”
Any sale would need the approval of the Alberta Utilities Commission, which would likely take several months.