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Kinder Morgan to Secure $2.5B From 2 Deals With Pembina

Zacks Equity Research

Kinder Morgan, Inc. KMI has announced two separate agreements with Pembina Pipeline Corporation PBA, mostly to strengthen its balance sheet.

Terms of the Deal

One of the deals entails Kinder Morgan’s decision to divest Cochin condensate pipeline’s portion in the United States for a consideration of $1.546 billion.

The other transaction involves the company’s plan to sell its 70% ownership stake in Kinder Morgan Canada Limited. Notably, this has opened up scope for Kinder Morgan to carry out its plan of exiting Canada. The exit program started in 2019 with the divestment of the disputable Trans Mountain pipeline.

For each share in Kinder Morgan Canada Limited, the leading North American energy infrastructure provider is expected to get 0.3068 shares of Pembina, totaling 25 million shares of the latter. With the deal, Kinder Morgan is likely to have roughly 5% interest in Pembina. This could fetch Kinder Morgan with roughly $935 million of pre-tax proceeds if the shares are converted to cash.

Hence, the deals — awaiting customary closing conditions and likely to close either by the December quarter of 2019 or the March quarter of 2020 — will fetch Kinder Morgan a total of $2.5 billion.

Rationale Behind the Deals

Kinder Morgan added that its primary intention is to employ the sale proceeds to lower debt burden. This will make the company’s balance sheet strong and will also enable the midstream player to maintain its ratio of net debt to adjusted EBITDA at 4.5 times. Notably, if the divestment of Cochin condensate pipeline concludes by the end of this year, Kinder Morgan thinks that it will be able to report a net debt to adjusted EBITDA ratio of 4.4 times in 2019, lower than its earlier projection of 4.6 times.

The company added that the remaining part of the sale proceeds will possibly be utilized for repurchasing stocks and growth projects.

Zacks Rank & Stocks to Consider

Headquartered in Houston, TX, Kinder Morgan carries a Zacks Rank #3 (Hold). Meanwhile, a couple of better-ranked players in the energy sector are World Fuel Services Corporation INT and Delek Logistics Partners, L.P. DKL. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

World Fuel beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 16.4%.

Delek Logistics is likely to see earnings growth of 4.9% through 2019.

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Delek Logistics Partners, L.P. (DKL) : Free Stock Analysis Report
 
World Fuel Services Corporation (INT) : Free Stock Analysis Report
 
Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
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