CALGARY, Alberta (Reuters) – Inter Pipeline Ltd’s ambitious petrochemical plant was meant to unlock new markets. Instead, it left the Canadian company struggling with cost overruns and vulnerable to a hostile C$7.08 billion ($5.64 billion) takeover by Brookfield Infrastructure Partners.

Some investors have ruled out a bid to compete with Monday’s bid for the oil and gas transportation company, and expect Brookfield to buy Inter just before its new Heartland Petrochemical asset comes online. Complex.

The C$4 billion Heartland plant near Edmonton, Alberta is Inter’s first petrochemical project and its largest ever capital investment. It is expected to be completed early next year, several months behind schedule and a C$500 million budget overrun due to the COVID-19 pandemic.

Heartland will increase Inter’s annual adjusted EBITDA, which is earnings before certain items, by C$500 million, or about 50% from 2020 levels. But the cost of the project is weighing on the the company’s balance sheet and the lack of information on sales contracts scares off many investors.

The pandemic has also stalled Inter’s search for a joint venture partner for Heartland, leaving the business exposed to cost and construction risks. This has hurt its shares, some investors say, making it an easy takeover target.

“If Inter could have brought in a partner, it could have protected them from this scenario,” said Ryan Bushell, chairman of Newhaven Asset Management, which owns shares in both companies.

“Inter are stuck between a rock and a hard place. They won’t be able to find a better deal and Brookfield knows that. They are buying Heartland essentially for free, with a fully operational business.

Bushell said he would prefer Heartland to remain an Inter asset so the company could realize the full value of the project.

SUPPLY OFFERS

In its offer, Brookfield warned that shareholders would continue to be exposed to cost overruns and construction delays on Heartland if they reject the offer.

“There was no value on Heartland before the offer. It’s an undervalued asset and kind of a shiny toy for Brookfield,” said Rafi Tahmazian, portfolio manager at Canoe Financial, which owns shares in Inter-Pipeline.

Inter spokeswoman Breanne Oliver said that in the current market environment, large, expensive projects like Heartland do not attract significant value until they enter commercial operation.

Brookfield officially launched its hostile bid for Calgary-based Inter on Monday, offering C$16.50 per share. Last month, after initial representations from Brookfield, Inter made a C$24 share offer to Brookfield, which the suitor rejected. Inter have announced a strategic review.

Shares of Inter last traded at C$17.82, a sign investors are betting on a softer bid.

First announced in 2017, HPC will convert 22,000 barrels of propane per day into 525 kilotons per year of polypropylene, a plastic used in a wide range of products. Demand for plastic is growing worldwide, but margins have been squeezed as the price gap between the feedstock propane and polypropylene has narrowed in recent years and as a new entrant Inter are struggling to enter into supply agreements.

Rival Pembina Pipeline Corp suspended a similar project in December, citing significant risks.

The search for a Heartland partner continues, but some investors say Inter will run out of time to find a competing bidder who can beat Brookfield’s offer.

“There aren’t many parties that can jam such a good counter-offer in time,” Tahmazian added.

($1 = 1.2564 Canadian dollars)

Additional reporting by Maiya Keidan in Toronto; Editing by Denny Thomas and Marguerita Choy