Photographer: Brent Lewin/Bloomberg

Kinder Morgan Files for Trans Mountain IPO, Drops Partnership

Updated on
  • Pipeline company seeks to raise $1.28 billion in stock sale
  • Kinder was in talks with ArcLight, others about joint venture

Kinder Morgan Inc. is seeking to raise about C$1.75 billion ($1.28 billion) in an initial public offering of assets including the Trans Mountain pipeline system in Canada, scrapping plans for a minority stake sale to potential partners such as ArcLight Capital Partners.

The pipeline operator plans to offer the shares in Kinder Morgan Canada Ltd. at C$19 to C$22 apiece and list in Toronto, according to a regulatory filing Wednesday. The company expects to issue 79.5 million to 92.1 million shares to help finance Kinder Morgan’s Trans Mountain Expansion Project, valuing the company at about C$7.07 billion based on the mid-point of the range and 345 million shares outstanding.

At the top end of the range, Kinder Morgan Canada would be one of the largest IPOs in Canadian history. The biggest was Manulife Financial Corp.’s C$2.49 billion initial offering in 1999. Canadian National Railway Co. raised C$2.26 billion in its IPO in 1995. The biggest government privatization was the C$3.18 billion sale of a about a fifth of Petro-Canada in 2004.

Houston-based Kinder Morgan had been running a dual track process, exploring both a minority stake sale of the assets along with a potential IPO. It said in a regulatory filing it was no longer exploring the joint venture. 

“KMI believes that the offering represents the superior path for financing the project for several reasons, including favorable governance, more certainty around timing, and a greater retained interest by KMI,” the company said, adding that it expected the offering to be completed by the end of May.

‘No Place’

Kinder Morgan’s planned expansion of the Trans Mountain pipeline may face more opposition after the ruling Liberal Party in British Columbia was reduced to a minority government in elections Tuesday. The party may now have to rely on support from the opposition Green Party, whose leader Andrew Weaver has said Kinder Morgan’s pipeline has "no place on our coast."

The pipeline project has already won approval from the B.C. and federal governments.

Federal Liberal lawmaker Hedy Fry, who represents a British Columbia district, signaled she considers the pipeline issue closed.

“The federal government has actually done its work and has spoken," she said, when asked whether the Green Party could kill the project. “So I think whomever the provincial government is, we will work with them on what we’ve decided and find partnership.”

Kinder Morgan is expected to retain as much as 77 percent of Kinder Morgan Canada if the share sale were to proceed, the filing shows. Toronto-Dominion Bank and Royal Bank of Canada are leading the share sale.

U.S. private equity firm ArcLight Capital Partners was among the final bidders to partner with Kinder Morgan in a joint venture of the C$7.4 billion Trans Mountain Expansion Project, people familiar with the matter have said. Brookfield Asset Management Inc. and Australia’s IFM Investors Pty Ltd. also progressed to the late rounds, the people said.

The Trans Mountain Expansion Project is expected to provide western Canadian crude producers with an additional 590,000 barrels per day of shipping capacity from Alberta’s oil sands to Canada’s Pacific Coast, where it could be shipped to the western U.S., according to a regulatory filing. Construction is due to start in September and the project should be completed by December 2019.

Pipeline Oversubscribed

The pipeline’s capacity has been oversubscribed since 2010 and upon completion, 80 percent of its capacity will be under long-term contracts, Kinder Morgan said in the filing.

In addition to the Trans Mountain pipeline system, Kinder Morgan Canada would include Kinder Morgan’s Puget Sound, Jet Fuel, and Canadian Cochin pipeline systems as well as its Vancouver Wharves Terminal and various facilities in Edmonton.

— With assistance by Meenal Vamburkar, and Josh Wingrove

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