U.S. Investor Skepticism Grows Over ‘Pig in a Poke’ Kinder Morgan Purchase
U.S. investors are beginning to second-guess Canada’s plans to buy out Kinder Morgan’s C$9.3-billion (and rising) Trans Mountain pipeline expansion, according to an analysis published last week on the 24/7 Wall Street blog and summarized by the Institute for Energy Economics and Financial Analysis (IEEFA).
“Canadian resistance to buying the Trans Mountain pipeline system Kinder Morgan Inc. subsidiary Kinder Morgan Canada is increasing,” the blog states, leading more “short sellers” to take an interest in the company’s stock. “Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit,” Investopedia explains: the implication is that, if the bailout deal fell through, Kinder’s shares might be in for a steep fall.
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The 24/7 post cites multiple obstacles facing the controversial pipeline project, including “ramped up opposition” from First Nations and environmental groups, the $1.9-billion cost increase disclosed in Kinder Morgan’s regulatory filing last week, and an IEEFA report earlier this month, noting that the U.S. Committee on Foreign Investment—and ultimately Donald Trump—will have to approve the deal.
The full version of the post, though not IEEFA’s summary, cites economist Robyn Allan’s caution that the project’s current $9.3-billion price tag “is the least that [the project] will cost.”
“From where we sit, Canada may be about to plunk down C$4.5 billion for a pig in poke,” 24/7 states, citing a review of the project by TD Securities. “If scrutiny of the deal intensifies, Kinder Morgan may not realize a payday after all, and that’s what the short sellers may be counting on.”