GIP in $300m Chesapeake sale

The US fund manager sold 9.25 million units in the secondary market of master limited partnership Chesapeake Midstream, priced around $29 apiece. The tender marked the second major energy sector sale in 2012.

US fund manager Global Infrastructure Partners (GIP) is set to raise $300 million with a secondary market offering of Chesapeake Midstream Partners, its jointly-held master limited partnership (MLP) with natural gas titan Chesapeake Energy.

GIP crafted a 9.25-million unit auction last Thursday of Chesapeake Midstream, traded under the ticker sign CHKM on the New York Stock Exchang. GIP priced Chesapeake at $28.70 per unit; the MLP was trading around $28.30 Friday.

GIP, which is located in London and New York as well as Stamford, Connecticut, said Citigroup, Bank of America Merrill Lynch, Barclays Capital and Morgan Stanley underwrote the Chesapeake transaction.

The GIP-Chesapeake deal marked the second major energy infrastructure tender in a month. Brookfield Asset Management raised $300 million with a secondary market offering of its Brookfield Renewable Energy Partners (BREP) fund. Toronto-based Brookfield held an 11-million unit sale of BREP to raise capital for a possible acquisition.

A secondary market offering is an offering of a block of a security held well after its initial public offering (IPO). Unlike a follow on offering, a secondary market offering will not dilute the value of the stock. Often, a secondary market offering is intended to help raise capital to finance growth, or spread market capitalisation.

Chesapeake Midstream had a widely anticipated IPO in July 2010, piquing investor interest based on its relationship to Chesapeake Energy, the Oklahoma natural gas concern. Chesapeake Energy spun off Chesapeake Midstream, its erstwhile midstream energy business unit, as a MLP, considered a tax-efficient as well as highly liquid partnership structure.

‘Midstream energy’ is a term used to describe the business of processing, storing, transporting and marketing crude oil and natural gas. Chesapeake Midstream is described as a natural gas gathering pipeline operator, with a high profile in Arkansas, Kansas, New Mexico, Oklahoma and Texas.

In December, Chesapeake Midstream paid $865 million to own a 200-mile stretch of gathering pipeline in the highly publicised Marcellus Shale, a unit of marine sedimentary rock in North America containing a hitherto untapped natural gas reserve.

A general partner in Chesapeake Midstream along with Chesapeake Energy, GIP was backed early on by General Electric and Credit Suisse Group, which helped launch its $5.64 billion debut infrastructure fund. The fund manager has recently reached a first close of $3 billion for its second infrastructure fund, targeting a final close of $6 billion.

In addition to Chesapeake, GIP in its energy portfolio is an owner of Ruby Pipeline Holding Company and East India Petroleum.