OCIP IPO Preview Oct 2013

OCI Partners, LP (ticker OCIP) is currently out on its IPO roadshow and looking to raise $350 million by selling 17.5 million common units (before the over-allotment) at a mid-point price of $20 with an indicated mid-point yield of 10.75%. OCIP will have a variable distribution policy and will distribute 100% of the cash available each quarter. They expect to price the deal Thursday October 3.

OCIP is a Delaware limited partnership formed in February 2013 to own and operate a recently upgraded, integrated methanol and ammonia production facility that is strategically located on the Texas Gulf Coast near Beaumont. It is currently the largest merchant methanol producer in the United States with an annual methanol production capacity of approximately 730,000 metric tons and an annual ammonia production capacity of approximately 265,000 metric tons, and it is in the early stages of a debottlenecking project that will increase annual methanol production capacity by 25% to approximately 912,500 metric tons and annual ammonia production capacity by 15% to approximately 305,000 metric tons. Given its advantageous access and connectivity to customers and attractively priced natural gas feedstock supplies, OCIP believes that it is one of the lowest-cost producers of methanol and ammonia in its markets.

NOTE: OCIP is not related to the most recent MLP IPO called OCI Resources, LP (OCIR).

IMPORTANT: OCIP will provide investors with a K-1 (instead of a 1099-DIV), which makes OCIP appropriate for taxable accounts. Here is the key language from the “Tax Risks” section of the Prospectus (page 49) telling you that it does not really belong in an IRA (or any tax advantaged account):

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in our common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult a tax advisor before investing in our common units.

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About Philip Trinder

President of MLP Protocol, investor, trader, and proponent of Master Limited Partnerships.
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