KINDER MORGAN AND THE BLACK ART OF INNUENDO


I wish to try to point out some facts about Kinder Morgan, in response to a concentrated and prolonged attack unleashed on it by a mix of innuendo artists camouflaged as financial analysts. I’ll take as reference this article published on Seeking Alpha, following the last spear hit on the company by Moody’s, which changed its debt outlook to negative from stable. Nothing personal, it’s just a starting point.

What I have already stated in the comments to the article about Richard Kinder are facts and facts cannot be countered by any sort of innuendos. Neither they can be neutered by plain nonsense, like lamenting his cashing dividends from his ownership in a company he started from scratch and built to the present dominance in its sector of business. Nor they can be hindered by sly half-truth, like pointing out that he chaired Enron. Yes, he chaired it and his leave saw the demise of that company after five years under the guidance of the people who substituted him.
At purpose, what was the rating of Enron up to its bankrupt? What was the rating of Lehman Brothers? And Bear Stearn?

No hero-worshipping on my part, as you can see. I worship only God (and therefore the truth). I hope there’s not a worshipping of something else on the other side.

Speaking of nonsense, could someone please be so kind to point out some FACTS that would show Richard Kinder interests not aligned with the rest of the shareholders in the company he manages?
I have stated mine, namely: no compensation, no options, bonus and all kind of legalized ways to milk a public company by its managers, no political meddling, all of his wealth concentrated pretty much in his company, regular buying at market prices of further ownership in the company, a stellar past performance, a perfect match of all forecasts but one.
In response, I have heard only innuendos, nonsense and cross-references to rating agencies and hit pieces, and a multiplication of articles published by people clearly subtracted to land plowing.

It should be clear to anyone with half a brain that rating agencies (yes, all of them) are just gate-keepers and policemen to control the financial landscape for those selected fews “more-equal-than-anyone-else”, to make sure that nobody can access capital at fair price without their consent and therefore to make all participants to behave.
Time and again, FACTS have proven beyond any reasonable doubt that they are one of the most dangerous factor of instability for the financial system.
They can be compared to fire inspectors who fill the house they are inspecting with all sort of flammable materials, make sure that there are plenty of things able to give a spark nearby and finally pour very solemnly gasoline on the first timid flames.
I hope I will be excused if I don’t give a damn about their regurgitations!

Yet the author, in a supreme characterization of innuendo, spills fears of Kinder Morgan going bust (no less!) following the last from Moody’s.
I beg pardon, but exactly….. HOW?

We have a company with vital assets in a most sensitive economic field (it transports one third of all natural gas moved in the US, among other things), which is able to earn yearly 4.8 billions $ in free cash flow, that is after interest expense and maintenance capex. How is it going bust? Inquiring minds wish to know…..

Is it going to be shut out of capital markets, if the rating agencies keeps on barking? I would beg to differ, but anyway…. let’s be it! A very quick look at the company’s website would make you know that its policy is to give all the free cash it produces back to shareholders, leaving the decision about expansion to the investors. It means a very simple thing: Kinder Morgan needs access to capital market only to expand its business or make new acquisitions. Now, if investors are not willing or too demanding, the company will just keep on cashing around 5 billions every year until they change their mind. That’s not exactly the definition of “going bust” last time I checked the dictionary.

In fact, I could even make a case for that free cash flow to go slightly higher without expanding assets, but it would be redundant.
Yes, I know…. oil is going to 20$, so says Goldman Sachs. I know also that in July 2008, with oil at 150$, they said it was going to 200$.

Of course, there is debt which must be repaid, but also here facts are missing. How much debt comes due in the next few years? Deafening silence!

Well, there are maturities for 1.6 billions next year and 3 billions in 2017. On the other side, there are 10 billions of free cash flow and 3.5 billions of available revolver borrowing, plus capital markets closed only in the wild dreams of innuendo artists. If they go with equity issue reserved exclusively to existing shareholders, I think they could even not decrease the dividend.
In any case, a couple of billions of dollars can be raised without excessive hindrance in two years time, even paying a few basis points more.

No growth? Well, sign me in for life at 9% yield!
That will not be the case, however. The financial banners will change direction in a short while, after the current raids are over.
There is an illogical thought habit in economic reasoning today which sees the finance as a branch of economy, a derivative one furthermore. That is, the belief that financial outcome depends on the economic choice made or undergone by the economic agent, that what happens in the financial markets is the direct consequence of underlying economic interactions. Nothing can be further from the truth!
It does not follow, it leads economic upheaval. It’s designed above all to cause fictive perceptions as a mean to impose alien choices and agenda on the economic agents targeted, or to force them out of the arena, with the juicy corollary to create for a selected fews enormous profits exploiting the wild fluctuation of “prices”.
In short, post-modern finance is the ultimate price fixing scheme!

It seems that they will be successful in forcing Kinder to do what they want (that is, to lose completely its credibility),  after pocketing juicy profit on the skin of little ones and retirees, selling what they do not own.

I hope that company management does not bow to this despicable blackmail. Stay the course with the dividend increase, pay it in shares with rates of conversion at the average price of the week BEFORE DECLARATION (dilutive but to excusive benefit of shareholders, with fractions paid in cash) and use cash flow to fund growth and reduce leverage! Or use a mix, according to necessity, in relation to financing availability at satisfying rates. Even just announcing it would make them retreat. And after listen to the gnashing of teeth…..

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