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Kinder Morgan (KMI) announced today the signing of an agreement with Pembina Pipeline (PBA) for the sale of the US portion of its Cochin pipeline. It also announced its intention to sell Pembina its 70% interest in Kinder Morgan Canada Limited (KML.TO).
These transactions are valued at approximately $ 2.5 billion. This total includes approximately $ 1.5 billion in cash and approximately 25 million shares in Pembina. The company noted that the closing of both transactions is "cross-conditioned". The company expects transactions to close in the fourth quarter of 2019 or the first quarter of 2020.
Reasoning
Kinder Morgan was evaluating the appropriate options for its stake in KML since the company sold its main asset, Trans Mountain Pipeline, to the Government of Canada last year. The company used the proceeds of this transaction to reduce its debt.
Similarly, Kinder Morgan plans to use the proceeds from its last sale of assets to reduce its debt. The company aims to maintain an adjusted net debt / EBITDA ratio of approximately 4.5x. In addition, it plans to use the remaining proceeds in growth or share repurchase projects.
According to the Company, the $ 1.5 billion cash proceeds from the sale of Cochin Pipeline would improve its debt / EBITDA ratio to 4.4. The company previously had a ratio of 4.6 at the end of 2019. Kinder Morgan has been working for some time to reduce its debt.
Steve Kean, CEO of Kinder Morgan, said of the benefits of these transactions: "This allows KMI to reduce its leverage and gives us the ability to create additional shareholder value through share buybacks. , investments in projects or both. "
Kinder Morgan's KML transaction
For the sale of the interest in KML, Kinder Morgan would receive 0.3068 Pembina shares for each of its shares in KML. In total, Kinder Morgan holds just under 5% of Pembina's common shares after the transaction. Eventually, the company plans to convert these shares into cash. However, it plans to do so opportunistically without disrupting Pembina's share price.
KMI shares reacted positively to the news and rose 1.2% early in the morning. The stock rose about 32% in 2019, outperforming the broader markets.
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