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Enbridge (ENB) to Boost Divestments & Reduce Debt Burden

Enbridge Inc.ENB intends to expedite its divestment program for 2018, per Reuters. The company plans to divest C$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 C$10 billion worth of non-core assets . Of the total, the company expected to monetize at least C$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 C$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.

Price Performance

Enbridge has lost 18.2% in the last year compared with 9.7% decline of its industry .

About Enbridge

Headquartered in Calgary, Alberta in Canada, Enbridge is a leading energy infrastructure company. One of its businesses is the transportation of energy through the most extensive and advanced crude and liquids pipeline system that spreads globally. Through the Mainline and Express pipelines, the company transports 2.8 million barrels of crude every day, which accounts for almost 65% of the Canadian crude oil production that is transported to the United States.

Zacks Rank and Stocks to Consider

Enbridge Energy carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the oil and energy sector are Cabot Oil & Gas Corporation COG , Suncor Energy Inc. SU and Pioneer Natural Resources Company PXD . All these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Houston, TX-based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to increase 34.7% year over year. For 2017, the bottom line is expected to be up 347.6%.

Based in Calgary, Canada, Suncor Energy is an integrated energy company. Its revenues for first-quarter 2018 are expected to improve 19.5% from the prior-year quarter. For 2018, the bottom line is anticipated to be up 21.9%.

Irving, TX-based Pioneer Natural Resources is an independent oil and gas exploration and production company. Its revenues for first-quarter 2018 are expected to improve 22.4% from the prior-year quarter. For 2018, the bottom line is anticipated to be up 159.3%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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