Pembina Pipeline Corporation Announces Preferred Share Conversion Right and Dividend Rate Reset
Pembina Pipeline Corporation has provided notice that it will not exercise its right to redeem the Cumulative Redeemable Rate Reset Class A Preferred Shares, Series 1 ("Series 1 Shares") on December 1, 2023. As a result, holders of the Series 1 Shares will have the option to convert them into Cumulative Redeemable Floating Rate Class A Preferred Shares, Series 2 ("Series 2 Shares") on the same date. The conversion will be on a one-for-one basis, and those who choose not to convert will retain their Series 1 Shares. The terms of the Series 1 Shares state that if there are fewer than 1,000,000 Series 1 Shares outstanding after the conversion, they will be automatically converted into Series 2 Shares. The dividend rates for both series of shares have also been announced. The Series 1 Shares will have an annual dividend rate of 6.525 percent for the five-year period from December 1, 2023, to December 1, 2028. The Series 2 Shares will have a floating quarterly dividend rate that will be reset every three months. Beneficial holders of Series 1 Shares who wish to exercise their conversion right must do so before November 16, 2023.
Implications for New Businesses in the Energy Sector
Pembina Pipeline Corporation's recent announcement regarding the conversion right of its Series 1 Shares and the reset of its dividend rates could have significant implications for new businesses in the energy sector.
Investment Opportunities and Risks
On one hand, the decision not to redeem the Series 1 Shares offers an attractive investment opportunity. The announced annual dividend rate of 6.525 percent for the next five years could potentially attract investors looking for steady returns. On the other hand, the option to convert these shares into Series 2 Shares, with a floating quarterly dividend rate, introduces an element of uncertainty.
New businesses must carefully consider these factors when making strategic decisions. The choice between retaining the Series 1 Shares or converting them into Series 2 Shares will depend on their risk tolerance and financial goals. Moreover, the automatic conversion clause for cases where there are fewer than 1,000,000 Series 1 Shares outstanding adds another layer of complexity to the decision-making process.
In conclusion, while Pembina's announcement presents potential opportunities, it also underscores the need for new businesses to have a deep understanding of financial instruments and market dynamics in the energy sector.