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Duke Energy Plans Income Fund IPO for Canadian Midstream Assets

Duke Energy Corp. is spinning off its Canadian midstream business into an income fund and is planning an initial public offering (IPO) of trust units of the fund. The announcement in Canada Friday by Duke Energy Income Fund said a preliminary prospectus has been filed with securities regulatory authorities in all of the Canadian provinces.

The fund has been established to indirectly acquire all of the outstanding common shares of Duke Energy Midstream Services Canada Corp. from a subsidiary of the parent company. Duke Energy will retain an interest in the fund.

The Canadian midstream group owns western Canadian interests in nine natural gas processing plants, seven of which process sour gas, and over 1,400 kilometres of natural gas gathering pipelines in the western part of the Western Canadian Sedimentary Basin. The facilities are grouped into four geographically distinct operating areas: the Peace River Arch region in northwestern Alberta; the Nevis region in central Alberta; the Pesh Complex region in northeastern British Columbia and the Brazeau River region in the Alberta foothills.

The underwriting syndicate is being co-led by CIBC World Markets Inc. and Scotia Capital Inc. and includes BMO Nesbitt Burns Inc., TD Securities Inc., Canaccord Capital Corporation and Clarus Securities Inc.

The income fund securities are not being registered with the U.S. Securities and Exchange Commission, and may not be offered or sold in the United States absent registration or any applicable exemption from the registration requirements under United States securities laws, the announcement said.

Duke is just one of many companies, energy and otherwise, taking advantage of the favorable tax treatment given to income funds in Canada. There have been rumblings recently that the income funds are becoming too popular and are putting a dent in Canadian government revenues. Several proposals for reform have been circulating, one of which would allow the favorable tax treatment for Canadian investors, but not for others.

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