The following article by John Abernethy featured in The Australian, 16 February 2011
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ETHANE Pipeline Income Fund (EPX) has one asset. It owns the 1375km long, high pressure ethane pipeline, which runs from Moomba in South Australia to Botany in Sydney.
COMPANY: Ethane Pipeline Income Fund
ASX CODE: EPX
DIVIDEND PER SHARE: 16.54 (forecast: 16.5c)
YIELD: 11.8 per cent
Ethane is a by-product of natural gas and is an essential and low-cost raw material used in the production of polyethylene, which in turn is used to manufacture plastic.
The pipeline was built between 1994 and 1996 by the Commonwealth Pipeline Authority under a contract with ICI Australia (now Orica), which also then owned the Botany Plant.
The pipeline is now rented by Qenos, a company that holds more than 50 per cent market share of the Australian polyethylene market. Last week Santos and Qenos informed EPX that the ethane supply agreement between them has been extended to December 2014, when it will be subject to a further negotiation.
EPX provides investors with a tax-effective and stable cashflow of rental income. The APA Group, which is Australia’s largest manager of pipelines, provides responsible entity and pipeline management services to EPX.
EPX made distributions to unit holders of 16.54c per unit in the calendar year 2010, of which 77 per cent was tax deferred. The distribution has been reduced while the fund repays its last remaining bank debt. EPX will be debt free by December next year, at which time it will hold about $20 million in cash for bank guarantees.
Once it is debt free, its expected distribution will grow dramatically. Thus, the projected distributions per unit will grow from 16.5c in this year to well over 20c in 2013. The present running yield of 11.8 per cent would seem excessive.
Source: The Australian, 9 February 2011