IPO Report: VTTI Energy Partners LP (VTTI)

VTTI Energy Partners LP  (VTTI) is a fee-based, growth-oriented limited partnership formed in April 2014 by VTTI, one of the world’s largest independent energy terminaling businesses, to own, operate, develop and acquire refined petroleum product and crude oil terminaling and related energy infrastructure assets on a global scale. It is headquartered in London, United Kingdom,

Nineteen other companies are scheduled to IPO for the week of July 28, 2014. The full IPO calendar is available at IPOpremium.

The manager and co-managers are Citigroup, J.P. Morgan, BofA Merrill Lynch, Credit Suisse, Deutsche Bank Securities, Wells Fargo Securities.  The joint managers are Rabo Securities, Mitsubishi UFJ Securities, BNP Paribas, HSBC Corporation,  Societe Generale,  SMBC Nikko, Credit Agricole CIB, ING. 

VTTI scheduled a $350 million IPO, with a market capitalization of $402 million at a price range midpoint of $20 for Friday, August 1, 2014 on the NYSE.  SEC filings

VTTI IPO Overview

VTTI is a fee-based, growth-oriented limited partnership formed in April 2014 by VTTI, one of the world’s largest independent energy terminaling businesses, to own, operate, develop and acquire refined petroleum product and crude oil terminaling and related energy infrastructure assets on a global scale.

VTTI Valuation

Glossary

Conclusion for VTTI IPO

The rating is positive

5.25% yield, carve-out

100% to selling shareholder

VTTI's Business

VTTI is a fee-based, growth-oriented limited partnership formed in April 2014 by VTTI, one of the world’s largest independent energy terminaling businesses, to own, operate, develop and acquire refined petroleum product and crude oil terminaling and related energy infrastructure assets on a global scale.

VTTI’s initial assets consist of a 36.0% interest in VTTI Operating, which owns a portfolio of 6 terminals with 396 tanks and 35.5 million barrels of refined petroleum product and crude oil storage capacity located in Europe, the Middle East, Asia, and North America.

VTTI’s network of terminal facilities represents one of the largest independent portfolios of refined petroleum product and crude oil terminaling assets in the world when measured by total storage capacity.

Since inception in 2006, VTTI’s parent VTTI has increased its operating storage capacity by 47.6 million barrels through a balance of organic development projects, greenfield construction and third party acquisitions.

Capitalizing on VTTI’s relationship with VTTI and its owners, Vitol and MISC, VTTI intends to continue its growth through acquisitions from VTTI or third parties, organic development opportunities, greenfield construction and optimization of its existing assets, and VTTI has a management team dedicated to executing this growth strategy.

VTTI’s primary business objective is to generate stable and predictable cash flows that will enable it to pay quarterly cash distributions to its unitholders and to increase those distributions over time.

VTTI generates substantially all of its revenue from long-term, fee-based, take-or-pay contracts for the terminal storage and throughput of refined petroleum products and crude oil. VTTI’s contracts have a weighted average remaining tenor of more than four years as of June 30, 2014, including the guarantee period.

The counterparties to VTTI’s terminal contracts are primarily major energy industry participants with strong credit profiles.

VTTI does not have direct commodity price exposure because VTTI does not own the underlying commodities being stored at its terminals and do not engage in the trading of any commodities.

VTTI's Dividend Policy

VTTI intends to distribute to the holders of common units and subordinated units on a quarterly basis at least the minimum quarterly distribution of $0.2625 per unit, or $1.05 per unit per year, to the extent VTTI has sufficient cash on hand to pay the distribution after VTTI establishes cash reserves and pay fees and expenses.

At the price range mid-point the initial expected annual yield is 5.25%

The amount of available cash from operating surplus needed to pay the minimum quarterly distribution for one quarter on all units outstanding immediately after this offering is approximately $10.8 million.

VTTI's Competition

Many major energy and chemical companies own extensive terminal storage facilities. Although such terminals often have the same capabilities as terminals owned by independent operators, they generally do not provide terminaling services to third parties.

In many instances, major energy and chemical companies that own storage and terminaling facilities are also significant customers of independent terminal operators.

Such energy companies typically have strong demand for independent terminals such terminals have more cost-effective locations near key transportation links, such as deep-water ports.

Major energy and chemical companies also need independent terminal storage when their own storage facilities are inadequate, either because of size constraints, the nature of the stored material or specialized handling requirements.

Independent terminal operators compete based on terminal location, flexibility of infrastructure, quality of service and price.

A strategically located terminal will have sufficient water depth for the different sizes of vessels that call at the terminal.

It will also have excellent logistics connectivity to the hinterland via barge, pipeline, rail and/or truck, thereby giving customers the possibility of employing the most cost-effective and efficient transportation mode. Most importantly, an ideally located terminal will provide easy access to demand markets as well as to supply and pricing centers.

Terminal flexibility is a function of the operator’s ability to offer their customers a high degree of interconnectivity and physical integration with the refinery and petrochemical complexes. These operators endeavor to offer their customers multiple modes of transportation for their products, invest in advanced blending and loading technology, and maintain high capacity throughput and storage equipment, such as tanks, pumps and berths, in order to provide customers with maximum flexibility and optionality in response to their business objectives.

Providing high quality of service is key for an operator to distinguish itself and maintain long-term customer relationships.

Key areas of service differentiation for an operator include its ability to offer clients tailor-made solutions and its operating standards.

An operator’s logistics capabilities are equally important, enabling optimal flexibility to a variety of products in the most cost efficient manner. Given the high value of the products being stored, service reliability is a critical differentiation among independent terminal operators.

Significant Barriers

Significant barriers to entry into the terminaling industry reduce pricing pressure from new entrants. Customers are also attracted to operators that can provide stable pricing over long contract periods. These term contract storage prices are typically inflation-linked with annual or periodic resets.

5% Stockholders

Carve-out from VTTI.                             

Use of Proceeds

100% to selling shareholder.