Suncor Deal Helps Canada Stock Sales Challenge Last Year Record

  • Equity issuance of $20 billion nears first half 2015 figure
  • Energy accounts for 55 percent of equity deals year to date

Canadian share sales are nearing a record for the first half as oil companies including Suncor Energy Inc. take advantage of a rebound in crude prices to shore up their balance sheets.

Companies in Canada have issued about C$26 billion ($20 billion) of stock so far this year, compared with C$30 billion in the first half of last year, the most ever for that period, according to data compiled by Bloomberg. Energy companies account for 55 percent of the deals this year, compared with 25 percent for the first half of 2015.

Suncor, the nation’s largest energy company, is the latest to appeal to equity investors with its C$2.5 billion share sale announced Tuesday, which would be one of the 10-biggest ever in Canada. Calgary-based Suncor said the proceeds will be used to fund its acquisition of a stake in the Syncrude joint venture, reduce debt and give it fire power to make other purchases. An almost doubling in the price of U.S. crude from its February low to about $50 a barrel is creating an opening for producers and pipeline companies to refinance.

“It’s a window of opportunity,” said John Stephenson, Chief Executive Officer and founder of Stephenson & Co. in Toronto. “They’re trying to stay in business and hunker down for the long haul. I don’t think anyone or their brother thinks we’re going to hit $100 oil any time soon.”

Top Five Equity Issues in Canada This Year

IssuerAmountDate
TransCanada Corp.C$4.42 billion03/17/2016
Suncor Energy Inc. C$2.5 billion 06/07/2016
Enbridge Inc. C$2.3 billion02/24/2016
Hydro One Ltd. C$1.97 billion04/05/2016
Silver Wheaton Corp. C$821.3 million03/30/2016

Only TransCanada Corp. has announced a bigger equity deal in the energy space this year than Suncor, with its C$4.4 billion offering to help cover the purchase of Columbia Pipeline Group Inc. Enbridge Inc., Seven Generations Energy Ltd. and Whitecap Resources Inc. are among other energy companies that have also sold shares this year.

U.S. Dollar

The recent rise in oil and natural gas companies accessing capital markets has been cause for optimism, and many of the deals have been oversubscribed and underwriters’ over-allotment options fully exercised, Scott Cochlan and Ron Deyholos, lawyers at Torys LLP in Calgary, wrote in a report this week. The appetite from investors has been particularly strong for deals from so-called midstream companies, those that process and transport fuels, they said. Midstream deals accounted for 85 percent of share sales done by energy companies in the first quarter, according to the Torys report.

The Canadian equity issuance figures have also been bolstered by deals in mining, financials and communications by companies including Franco-Nevada Corp., Fairfax Financial Holdings Ltd. and Corus Entertainment Inc.

Companies have been aided in their stock sales by a weaker U.S. dollar, a U.S. Federal Reserve on hold, stable equity markets and rebounding commodity markets, Stephenson said.

Shares Dip

“They’re scrambling to get as much as they can, while they can,” Stephenson said. “Everyone’s thinking ‘Do it now.’”

Suncor fell 2.8 percent, to C$35.47 at 2:26 p.m. in Toronto, helping to pull the S&P/TSX Composite energy index to a 1.5 percent loss, though crude futures in New York rose 1.1 percent to $50.92 a barrel.

Sneh Seetal, a spokeswoman for Suncor, didn’t elaborate further on the company’s plans for the money beyond the statement Tuesday, which says the proceeds would be used to protect the company’s balance sheet, allowing it to consider further acquisitions.

Energy stocks have played a major role in the S&P/TSX Composite Index’s resurgence this year to become one of the top developed markets in the world with a 10 percent advance, storming back to a bull market less than five months after slumping to a decade-low Jan. 20. 

The gauge of Canadian energy producers is up 18 percent so far in 2016, behind only a 46 percent rally in raw-materials stocks, which are off to their best start in three decades. The two industries account for about 32 percent of the S&P/TSX by market capitalization.

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