Inter Pipeline lands $408M grant for Heartland Petrochemical Complex from UCP

An Alberta government grant that more than doubles its previous commitment for a petrochemical plant being built by Inter Pipeline Ltd. puts pressure on Brookfield Infrastructure Partners LP to raise its hostile takeover bid, an analyst says.

On Monday, Inter Pipeline announced it will receive $408 million in cash grants for its Heartland Petrochemical Complex under an incentive program by the current United Conservative Party government but will have to give up $200 million in Alberta royalty credits granted by the previous NDP government.

"We view this as a significant positive for IPL as there were previously concerns about the recovery of the credits under the prior grant," said analyst Ian Gillies of Stifel FirstEnergy in a report.

"As such, we expect Brookfield may need to revisit its cash bid."

Brookfield is offering $16.50 per share in cash or 0.206 of a Brookfield Infrastructure Corp. class A exchangeable share, with the maximum cash available set at $4.9 billion, for Inter Pipeline. The offer is set to expire on June 7.

Inter Pipeline is continuing to fend off Brookfield's bid which values the Calgary-based company at $7.1 billion, claiming it fails to recognize the worth of the company and the potential earning power of the Heartland project.

The $4-billion integrated propane dehydrogenation and polypropylene production facility being built northeast of Edmonton will be the first recipient of the grant program announced in October, Inter Pipeline said in a news release.

"The grant recognizes the significant contribution HPC has and will continue to make to the Alberta economy," said Inter CEO Christian Bayle in a news release.

"HPC's construction has created thousands of well-paid technical, manufacturing and construction jobs over its multi-year build and has been a symbol of hope during difficult economic times for the province. In total, we expect that roughly $3 billion or three quarters of the project construction spend will be invested directly into materials and services provided by Alberta businesses."

The same project, designed to transform abundant Alberta propane into plastic beads to be exported to manufacturers, received $200 million in royalty credits in 2016 under the previous NDP government's incentive program.

The cash grant is to be paid to Inter Pipeline in equal instalments over three years once the complex is operational, expected in early 2022.

The grant program is designed to cover up to 12 per cent of eligible capital costs.