(Bloomberg) -- A Canadian pipeline that’s partially owned by KKR & Co. is set to kick off what’s likely to be the biggest corporate bond deal in the country’s history.

Coastal GasLink LP, a pipeline project in Western Canada, is preparing to borrow as much as C$4 billion ($2.9 billion) — a record for Canadian dollar corporate bonds — in early June, according to people familiar with the matter. The funds will refinance debt supporting the construction of the 670-kilometer (416-mile) natural gas pipeline, the people said, declining to be identified as the details are private. 

Even at C$3 billion — the lower end of the estimated range — the deal will match the third-largest deals on record, data compiled by Bloomberg shows. 

Like most developed nations, Canada has a complicated relationship with fossil fuels. Prime Minister Justin Trudeau is trying to put the country on a path toward slashing its reliance on non-renewable energy. Yet, oil, gas and consumable fuels companies make up a roughly 18% chunk of the S&P/TSX Composite Index. In the US, the equivalent figure amounts to just 3.5% of the S&P 500. 

Since its inception 12 years ago, the Coastal GasLink project has faced both regulatory and political battles — including between some Canadian indigenous groups and the government — as well as labor and contractor challenges. Over the last decade or so, the pipeline’s cost has more than doubled to C$14.5 billion from an estimated C$6.6 billion.

Coastal GasLink’s upcoming offering is expected to be part of a larger C$9 billion fixed-income financing plan for the pipeline, as Bloomberg previously reported.

“Obviously the larger size of the deal is a challenge, but if the deal is split in a few right-sized tranches and if it’s priced appropriately with enough new issue concession versus secondary comparable, it should go well,” said Imran Chaudhry, senior portfolio manager for fixed income at Fiera Capital Corp.

It will also bring much-needed issuer diversification in the relatively small Canadian market. 

“Given that issuer diversification is an important factor for most of the largest buyers of IG credit in Canada, this deal will certainly help with increased diversification resulting in higher investor demand,” Chaudhry said. 

Canadian companies have issued nearly C$60 billion of bonds so far this year — up by more than 50% from this time last year, data compiled by Bloomberg shows. Investors have sought to lock in relatively high yields before potential interest rate cuts, while borrowers took advantage of spreads tightening to near historic lows in several sectors.

Coastal GasLink’s pipeline project will feed natural gas from the Montney shale formation in Western Canada to the Shell-led LNG Canada terminal on the west coast. There, it will be converted into liquefied natural gas and exported, mostly to Asia.

Demand from Asia, particularly India and China, is expected to help bolster Canadian supply despite significant competition and price pressures from Middle Eastern producers, said Chaudhry. He expects global demand for LNG to keep growing moderately over the next few years, despite the push for carbon neutral policies across the globe. 

“Coastal GasLink is engaged in discussions with potential private bond investors to refinance a portion of its construction credit facility,” said a representative for TC Energy Corp., which holds a 35% stake in the project. “This is normal course for major infrastructure projects that are project financed as they complete construction.”

Representatives for KKR and Alberta Investment Management Corp. — which hold the remaining 65% stake in the pipeline — declined to comment. 

--With assistance from Ruth Liao, Kevin Orland and Derek Decloet.

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