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Kinder Morgan Gives Up on Investment Partner, Plans Public Share Offer

Kinder Morgan Inc., the Texas company behind one of the most contentious pipeline proposals on Canadian soil, will take the project public in the fervent hope that Canadian investors will help solve what some analysts see as its strained corporate finances.

The company will try to raise about C$1.75 billion from investors in “an initial public offering of assets including the Trans Mountain pipeline system,” Bloomberg reports, citing regulatory filings. The move abandons the company’s previous efforts to secure a minority partner for its plan to triple the capacity of its existing Alberta-B.C. pipeline.

Between 79.5 and 92.1 million shares in Kinder Morgan Canada Ltd. will be offered at C$19 to $22 on the Toronto Stock Exchange, giving up as much as 23% of the company’s equity in the Trans Mountain pipeline. “KMI believes that the offering represents the superior path for financing the project for several reasons, including favourable governance, more certainty around timing, and a greater retained interest by KMI,” the company said in a statement. The offering is expected to be complete by the end of May.

If investors buy in, it will pump new dollars into Trans Mountain ahead of the B.C. government’s July 2 deadline for the company to give the project an irrevocable green light. In its filings, KMI continued to anticipate that it would begin construction on the expansion this September, and finish by December, 2019. It claims to have commitments from shippers for 80% of the new capacity.

But investors will need to weigh the numerous negatives hanging over the project’s future—and Kinder Morgan’s.

Deeply unpopular in British Columbia’s vote-rich lower mainland, the Trans Mountain project may lose its provincial endorsement, Bloomberg hints, “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 project faces an assortment of other challenges, as well. For one thing, the company, which has donated more than $700,000 to the B.C. Liberals, may be caught up in ongoing investigations into that party’s “wild west” fundraising practices. KMI has also conceded there is a “high probability” that its $8-billion budget to complete the Trans Mountain expansion won’t be enough.

The undertaking “is getting more and more expensive by the day,” investment analyst David Alton Clark observed earlier in the year, and “we are nowhere near tallying up all the costs.” Kinder Morgan is carrying US$35 billion in debt, and Trans Mountain, Alton Clark noted, “is tying up nearly 60% of the company’s capital budget, when it was supposed to start contributing to cash flow and reducing its debt load in 2017.”

Failure to bring the pipeline in at all, that analyst concluded,  “would essentially be a death knell for Kinder Morgan.”