Hydro One IPO to Leave Ontario More in Debt, Watchdog Says

  • Heavily indebted sub-sovereign borrower owes C$298.9 billion
  • Seeks to raise as much as C$1.7 billion on utility IPO

Ontario’s planned sale of a stake in its Hydro One Ltd. electric utility will leave the province -- already among the world’s most indebted sub-sovereign borrowers -- with more debt in the future, an independent watchdog has found.

Premier Kathleen Wynne said in April she aimed to sell the stake in Hydro One, the province’s largest electricity transmission and distribution company, in the next four to five years to raise C$9 billion ($6.9 billion) for debt repayments and infrastructure investment.

Stephen LeClair, the province’s Financial Accountability Officer, estimates the 60 percent sale of Hydro One will generate C$6.8 billion to C$8.9 billion for the province, and reduce Ontario’s net debt initially by C$2.4 billion to C$3.9 billion for 2015-2016, but debt in the long term will increase on lost revenue.

The Toronto-based utility will price shares Thursday and is expected to start trading Nov. 5 on the Toronto Stock Exchange under the ticker symbol H, according to people familiar with the process, who asked not to be identified because the details haven’t been disclosed.

Estimated Proceeds

Ontario stands to lose C$100 million in payments in lieu of taxes it currently gets from Hydro One, LeClair estimates. The province will also lose its claim on the income from Hydro One, which was C$750 million in 2014. Elimination of a “debt retirement charge” after the province finishes paying off Hydro One’s debt will result in an annual loss of revenue of as much as C$600 million for the next three years.

Canada’s most populous province owes C$298.9 billion to its creditors, according to its first quarter financial update. Ontario forecasts it will pay C$11.4 billion in interest and run a deficit of C$8.5 billion for the 2015-2016 fiscal year.

Ontario’s government seeks to raise as much as C$1.7 billion by divesting a stake in Hydro One and selling shares for C$20 to C$21 each in an initial public offering. The amount may increase to as much as C$1.87 billion if banks arranging the sale exercise an option to sell an additional 10 percent.

Before it's here, it's on the Bloomberg Terminal.