The Ontario government chose Bank of Nova Scotia and Royal Bank of Canada to lead the initial public offering of Hydro One Inc., one of the biggest Canadian IPOs in 16 years.
The Toronto-based banks will oversee the sale of 15 percent of Hydro One in an IPO worth as much as C$2.25 billion ($1.82 billion). That would be Canada’s largest IPO since the C$2.49 billion sale by Manulife Financial Corp. in 1999.
The sale will add to a surge in IPOS this year, bolstering advisory fees for Canadian lenders. Companies that have gone public or announced plans to sell shares include Ottawa-based Shopify Inc., Stingray Digital Group Inc. and Shred-it International Inc.
Ontario invited Goldman Sachs Group Inc., Barclays Plc and Canada’s six biggest banks in April to pitch for a role in arranging the Hydro One IPO. Royal Bank is Canada’s biggest lender by assets, while Scotiabank ranks third.
The fees for the bookrunners will be 1 percent for institutional investors and 3 percent for retail buyers, “significantly lower than industry norms,” the energy ministry said in a statement Wednesday.
Investment banks typically get about 5 percent of the amount raised in IPOs, according to data compiled by Bloomberg. Scotiabank was Canada’s top arranger of equity financings last year followed by RBC, according to Bloomberg data. RBC ranks No. 1 for arranging stock sales this year, with Scotiabank in fourth, the data show.
Denis Desautels, former auditor general of Canada, reviewed the selection process to ensure fairness, the government said. Desautels was hired as a special adviser in May to identify potential conflicts of interest and assess criteria used to choose the banks.
Ed Clark, the former Toronto-Dominion Bank chief executive officer, oversees a group advising Ontario Premier Kathleen Wynne on asset sales including Hydro One. That advisory council has also tapped retired RBC Capital Markets investment banker Alan Hibben. The government on April 16 named David Denison, a Royal Bank board member and former CEO of Canada Pension Plan Investment Board, as chairman of Hydro One to lead the company through the IPO.
“It just seems like there’s a whole group of people on Bay Street that have become significant in government decision-making, and this is another expression of that,” said Peter Tabuns, energy critic for the New Democratic Party, which opposes the sale. “Even with Denis Desautels in place, it doesn’t look good.”
RBC Capital Markets spokeswoman Gillian McArdle declined to comment.
“The Premier’s advisory council on government assets is advising the government on the IPO process, however none of the council members had a role in the selection of the active bookrunners,” minister of energy spokeswoman Jennifer Beaudry said in an e-mailed statement. “The government used a rigorous selection process and a review panel comprised of government officials and independent experts.”
Desautels oversaw the process and found it fair, Beaudry said.
Wynne said in April the province ultimately plans to sell up to 60 percent of Ontario’s largest electricity transmission and distribution system to pay down debt and raise money for transit. With about 1.4 million customers and C$22.9 billion of assets, Hydro One is estimated by the province to have an equity valuation of C$13.5 billion to C$15 billion.