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WIKI ANALYSIS
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This company completed an initial public offering (IPO) of its stock in 2010. View articles that reference this company. Recent IPOs: Globe Specialty Metals • LogMeIn • Invesco Mortgage Capital • Medidata • Chemspec |
Kinder Morgan (NYSE:KMI) owns all of the general partner interests and 11% of the limited partnership interests of Kinder Morgan Energy Partners, L.P. (KMP). Kinder Morgan Energy Partners is a publicly traded company which operates Gas, CO2, oil, and petroleum pipelines across the United States. Kinder Morgan derives its cash from its ownership of Kinder Morgan Energy Partners (KMP). Since 1996 to 2011, the distribution Kinder Morgan has received from KMP have increased by a compounded annual growth rate (CAGR) of 52%. Kinder Morgan also owns a 20% equity stake in NGPL PipeCo LLC, which owns Natural Gas Pipeline Company of America.[1]
Kinder Morgan's stake in KMP entitles it to 2% of all cash until all partners have received $.15125, 15% until all have received $.17875, $25% until all have received $.23375, and 50% of cash afterwards. In other words, the more cash the partnership distributes, the larger percentage of it Kinder Morgan gets directly.[2]
The company's initial public offering of stock on the NYSE occurred on February 10, 2011. The company offered 95.5M shares each for $30. This was above the initial price range of $26-$29. The company sold 95.5M, which was more than the 80M originally expected. This brought the total deal size to $2.9B. This made the deal the largest private equity backed IPO on a US exchange. The lead underwriter of the IPO were Goldman Sachs Group (GS) and Barclays (BCS).[3]
For the first 9 months of 2010, Kinder Morgan's total revenue was $6.2B. This compares to $5.2B in total revenue for the first 9 months of 2009. The company reported a net income for the first 9 months of 2010 of $133M. [4]
Investors
The three Kinder Morgan companies Kinder Morgan Partners (KMP), Kinder Morgan Incorporated (KMI), and the Kinder Morgan management company (KMR), own the same assets: 38,000 miles of natural gas and product pipelines, and 180 terminals. [5]
The corporation (KMI), is buying El Paso pipeline partners (EP), which owns and operates natural gas transportation pipelines and storage assets. The El Paso transaction is expected to be nicely accretive to dividends of all three companies. [6]
The corporation’s (KMI) growth, is driven by Kinder partners (KMP), which currently accounts for approximately 98 percent of the distributions that the corporation (KMI) receives. The corporation (KMI) can then drop down some of the El Paso assets to Kinder partners (KMP). The cash from sales to the Kinder partners (KMP) will be used to reduce the leverage used to buy El Paso in the first place. Some of El Paso’s assets will also be sold as cash, or spun off into a separate company and sold. But the assets are so widely spread out geographically that a spin-off is less likely.
The Partners (KMP) has to pay out all of there earnings. So the only way any MLP can get cash is to borrow it, or sell something. Kinder partners (KMP) have to get the cash up to pay dividends anyway. Some they pay to the corporation (KMI) who pays the funds out to shareholders. Rather than receiving and distributing cash, the management company KMR, receives and passes through a dividend in shares known as paid-in-kind distributions. Kinder partners (KMP) the cash that would have been paid out as dividends, to buy assets from the corporation (KMI) and finance acquisitions internally. Over $490 million of the equity required for this investment program is expected to be funded by the management company’s (KMR) dividends. [7]
One of the reasons the management company (KMR) sells at a discount to the partnership is because the management company (KMR) pays dividends in shares based on the management company’s (KMR) average closing price for the 10 trading days prior to the management company’s (KMR) ex-dividend date. [8] But when you reinvest a cash dividend you buy at the ex-dividend price.
“KMP’s stable and diversified assets continue to grow and produce incremental cash flow in virtually all types of market conditions. We see exceptional growth opportunities in the midstream energy sector, particularly in the natural gas shale plays and in the coal export business.” ~ Chairman and CEO Richard D. Kinder [9]
“Kinder has made a low-return, humdrum business into a river of money.” ~ Robin West, consulting firm PFC Energy. [10]
References
- ↑ KMI S-1/A 2011 PROSPECTUS SUMMARY "Our Business" pg 1-2
- ↑ KMI S-1/A 2011 PROSPECTUS SUMMARY "Partnership Distributions" pg 2-3
- ↑ Renaissance Capital - IPO Home "Kinder Morgan prices IPO at $30, above the range" 10 Feb 2011
- ↑ KMI S-1/A 2011 PROSPECTUS SUMMARY "Summary Financial Data " pg 19
- ↑ [1]
- ↑ [2]
- ↑ [3]
- ↑ [4]
- ↑ [5]
- ↑ [ http://www.nytimes.com/2011/12/16/business/energy-environment/kinder-morgans-big-bet-on-fracking-boom.html?ref=cliffordkrauss]
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