No Big Pay Day for Bay Street on Hydro One, Clark Says

Bay Street investment bankers are unlikely to get a big pay day from one of Canada’s biggest initial public offerings ever, the sale of a stake in Hydro One Inc., said Ed Clark, the former bank executive charged with advising the province on asset sales.

“We are quite determined that when we do go public, you will see a fee structure that the industry has never seen before,” Clark, former chief executive officer of Toronto-Dominion Bank, told reporters in a briefing Thursday after releasing a report on maximizing the value of the asset sales. “There’s not going to be a lot of money made off this in Bay Street, I can tell you that.”

Ontario plans to sell a 15 percent slice in the provincially owned electricity utility in an IPO worth as much as C$2.25 billion ($1.84 billion) to help fund infrastructure and pay down debt as it battles a projected C$10.9 billion deficit for 2014-15.

Investment banks typically get an average of 5 percent of the amount raised in IPOs in the form of fees for arranging the sales, according to data compiled by Bloomberg. That means a typical transaction the size of Hydro One would generate as much as C$112.5 million for the banks behind the transaction.

Last year’s C$1.46 billion IPO of PrairieSky Royalty Ltd. generated C$73 million in fees, according the company filing.

Royal Bank of Canada and Bank of Nova Scotia are the biggest arrangers of IPOs this year in Canada, followed by Bank of Montreal and Canadian Imperial Bank of Commerce, according to data compiled by Bloomberg.

‘Making Nothing’

Clark, in replying to a question on whether Bay Street firms are enriching themselves from such deals, said there’s little gained for himself and Alan Hibben, a former banker with RBC Capital Markets that helped the advisory council.

“There’s two people who have been working directly on this -- Alan Hibben and myself -- are not making a whole lot of money out of what we’re doing, I can tell you that,” Clark said. “We’re making nothing.”

The largest IPO in Canadian history was in 1999 when Manulife Financial Corp. sold C$2.49 billion of shares in its initial offering. Canadian National Railway Co. raised C$2.26 billion in its IPO in 1995. The biggest government privatization was the C$3.18 billion sale of a about a fifth of Petro-Canada in 2004.

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