Ontario Optimistic on Hydro One IPO by September: Sousa

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Ontario aims to do its initial public offering of Hydro One Inc. by September, taking advantage of “great” market conditions to sell a 15 percent stake in the utility, Finance Minister Charles Sousa said.

Ontario plans sell part of Hydro One through an IPO of as much as C$2.25 billion ($1.84 billion), Premier Kathleen Wynne announced Thursday. The utility is Ontario’s largest electricity transmission and distribution system and estimated to have an equity valuation of C$13.5 billion to C$15 billion.

“My anticipation is by September we should be able to get something done,” Minister Sousa said today in a telephone interview from Toronto.

The province will ultimately sell up to 60 percent of the utility over the next four or five years to raise C$9 billion for debt repayments and infrastructure, while leaving it the biggest shareholder. Hydro One has about 1.3 million customers and C$22.6 billion of assets.

“The marketing conditions are great right now for a public offering, especially a company of this size,” Sousa said. “This will be one of the largest in Canada with respect to its market cap.”

Hydro One reported profit of C$749 million in 2014 on revenue of C$6.55 billion, according to financial statements, making it one of the largest utilities by sales.

Biggest IPOs

The largest IPO in Canadian history was in 1999 when Manulife Financial Corp. sold C$2.49 billion of shares. 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.

The province is making requests for proposals from investment banks interested in arranging the sale process, and are likely to involve lower fees than a typical IPO, according to Ed Clark, the former Toronto-Dominion Bank chief executive officer who advised Ontario on the asset sale. Fees are usually about 5 percent, according to data compiled by Bloomberg.

The fee structure they’re using for comparisons are those that were done for other large government asset sales, including the 1988 IPO of Air Canada and others since including Petro-Canada and Canadian National, Sousa said.

“Those are the sort of comparisons that we’re using in terms of how we’re going to do this deal,” he said.

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