(Reuters) — U.S. pipeline company Kinder Morgan Inc (KMI.N), looking to fund its growth at a time of low oil prices, on Monday said it plans a $1.6 billion offering of 32 million depositary shares that will convert to preferred shares in three years.
Investors panned the deal, sending shares of the Houston company down as much as 4.7 percent on the New York Stock Exchange trading.
Last week on its third-quarter earnings call, Kinder Morgan executives said they were seeking alternative means of raising capital without issuing common shares, which could dilute equity. The company also prompted some selling of its shares by saying it saw slower growth dividend payouts in the future.
Quinn Kiley, managing director of the MLP & Energy Infrastructure fund at Advisory Research Inc, said investors were likely unhappy with the deal in the short term because “it appears they are going out and raising equity at a higher coupon than they could with common stock.”
The offering is being marketed at $49 to $50 per share, with a 9.75 percent coupon and 17.5 percent to 22.5 percent convertible premium range, according to bookrunners Citigroup, Bank of America-Merrill Lynch and Morgan Stanley.
The marketed coupon represents a 275 basis point premium to Kinder Morgan’s 7 percent common stock dividend yield based on current levels.
Each depositary share represents 1/20th of a preferred share.
A spokesman for Kinder said the deal was a more cost-effective means of raising funds because the company’s common equity is trading at low prices.
“The issuance of $1.6 billion in preferred equity alleviates some of the uncertainty around Kinder Morgan’s ability and willingness to issue equity given current market weakness,” said analysts at debt rating agency Fitch.
Shares of Kinder Morgan, which are so far down 33 percent this year, fell 93 cents to $28.30 in afternoon trade.