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Kinder Morgan's Trans Mountain Pipeline Financing at Risk

Zacks Equity Research

Kinder Morgan, Inc.’s KMI Trans Mountain pipeline expansion may not receive funding from Canadian lender, Desjardins, which cited concerns about the project’s impact on the environment. Desjardins had committed $145 million to Kinder Morgan’s Trans Mountain pipeline expansion.

Desjardins, the largest association of credit unions in North America, is no longer contemplating on funding energy pipelines. Per the sources, on Jul 7, the company temporarily suspended lending for such projects and stated that it could finalize the decision. However, a final statement would be made by the lender in September.

Per sources, Desjardins, a financier of Kinder Morgan Canada Ltd's expansion of Trans Mountain pipeline, has been appraising its policy for such lending for months.

If Desjardins sticks to its decision permanently, the association will stop funding other major Canadian pipeline projects, including TransCanada Corp's Keystone XL, Energy East and Enbridge Inc's ENB Line 3.

Such a move would follow that of Dutch lender ING Groep NV, which has a long-standing policy of not backing projects directly linked to oil sands. It is the latest indication that pipelines could face difficulty while applying for funds as banks face pressure from withdrawals.

Per the regulatory filings, Desjardins is among 24 financial institutions that approved to lend money to a subsidiary of Kinder Morgan Canada, majority of which is owned by Kinder Morgan.

In June, an alliance of over 20 indigenous and environmental groups, including Greenpeace, urged 28 major banks to pull funding for Trans Mountain. They mentioned the risk of pipeline spills and their potential contribution to climate change. ING, which was under attack by the coalition, explained it will not finance any of the major Canadian pipelines.

The same month, Sweden's largest national pension fund, AP7, followed suit by selling investments in six companies. It says that the companies, including TransCanada, breach the Paris climate agreement. Environmentalists believe that this decision is the first of its kind.

Shares of Kinder Morgan have lost 12% over the last three months compared with the Zacks categorized Oil & Gas – Production and Pipeline industry’s decline of 5.3%.

Kinder Morgan currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same space include Delek US Holdings, Inc. DK and Canadian Natural Resources Limited Ltd. CNQ. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Delek US Holdings delivered a positive earnings surprise of 148.48% in the preceding quarter. The company beat estimates in each of the four trailing quarters, with an average positive earnings surprise of 60.68%.

Canadian Natural Resources delivered a positive earnings surprise of 30.77% in the preceding quarter. It surpassed estimates in two of the four trailing quarters, with an average negative earnings surprise of 275.46%.

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