Kinder Morgan’s Canadian unit debuts below IPO price on TSX

Kinder Morgan Canada Ltd.’s shares tumbled in the company’s public debut as new risks threatened to stall a major pipeline expansion to Canada’s West Coast.

Houston-based Kinder Morgan, which aims to triple the capacity of its Trans Mountain pipeline, raised $1.75-billion in the biggest initial public offering in the energy sector in more than two years.

But shares in the company’s Canadian unit immediately fell on Tuesday as investors weighed possible impacts of a minority government led by British Columbia’s New Democratic Party on the $7.4-billion expansion.

Read more: What Kinder Morgan's Trans Mountain pipeline will mean for B.C.'s coast

The stock plunged more than 7 per cent on the Toronto Stock Exchange before paring losses to close at $16.24, down 4.5 per cent from the already discounted $17 issue price.

NDP Leader John Horgan and the Green Party’s Andrew Weaver agreed Monday to topple the governing Liberals, who failed to capture a majority in the recent provincial election.

Both are opposed to the pipeline expansion and have pledged to kill it, though it’s not clear how. A joint statement issued by the parties on Tuesday vowed to “employ every tool available” to stop the project.

Even so, they could amplify deep-seated opposition in cities and in aboriginal communities on the coast, making delays more likely, said Robert Mark, a portfolio manager at Raymond James Ltd. in Toronto.

It makes the shares less appealing, even though the company’s existing assets are unique and profitable, he said.

Those include the existing Trans Mountain conduit, plus storage terminals and other pipelines such as Cochin, which delivers condensate from Illinois to Fort Saskatchewan, Alta.

“I don’t expect it to be cancelled or reversed but an antagonistic provincial government could slow the process significantly and cause delays from the 2019 completion date,” Mr. Mark said. “We are not buying the shares for our portfolios as there is too much risk at this time.”

Kinder Morgan and its bankers had already tempered expectations before launching the offering, walking back the price of the restricted-voting shares on offer from an initial range of $19 to $22. The issue was co-led by the capital markets arms of Toronto-Dominion Bank and Royal Bank of Canada.

With the financing complete, the U.S. pipeline company said on Tuesday that it would proceed with the expansion, which would boost capacity on the conduit to 890,000 barrels a day.

It aims to start construction on portions of the route between Edmonton and Burnaby, B.C., as early as September. If built, the company and its oil industry backers estimate the project will generate billions of dollars in government revenues, while boosting employment in what remains a downtrodden energy sector.

However, the expansion faces more than a dozen legal challenges and hundreds of complaints over the detailed route to the coast, raising the prospect of further delays should the company fail to reach agreements with landowners along the way.

Such risks were spelled out in the prospectus, including the potential for a “total stoppage” of the pipeline. But it remains unclear what mechanisms Mr. Horgan and his allies could use to stymie the development.

The expansion received B.C. environmental certificates in January, following approval by Prime Minister Justin Trudeau late last year. On Tuesday, he reaffirmed the federal government’s support.

Speaking in Rome during a joint news conference with Italian Prime Minister Paolo Gentiloni, Mr. Trudeau said the project should not be held hostage by a change in government in the western province.

Similarly, Alberta Premier Rachel Notley dismissed risks, reiterating her position that the federal government has ultimate authority over such developments.

Kinder Morgan said it would retain a 70-per-cent stake in its Canadian affiliate following the share sale. The company had previously acknowledged that the timing of the issue was not ideal, given the political manoeuvring at play.

But it said it proceeded because a so-called financing contingency period outlined in confidential agreements with shippers expired at the end of May.