Stock Sales in Canada Near Record as Resource Firms Power Deals

  • RBC, TD lead in arranging equity sales fueled by acquisitions
  • Total raised is second-best behind first six months of 2015

Canadian companies raised C$28.5 billion ($22 billion) in domestic stock sales in the first half of the year, the second-highest on record for the period, as some of the country’s biggest resource firms tapped equity markets to pay for acquisitions.

Six deals valued at more than C$1 billion accounted for almost half the total amount of equity financing in the first six months. The amount raised this year in Canadian initial public offerings, secondary sales and equity-linked securities trails only the C$30.1 billion collected in the first half of 2015, according to data compiled by Bloomberg.

“A lot of the activity this year has been driven by large deals, and you’re seeing the market open up for oil-and-gas names again,” Sante Corona, head of equity capital markets for Toronto-Dominion Bank’s securities unit, said in an interview. “One of the themes we’ve seen this year, which is a continuation from 2015, is acquisition-related financings being very well received.”

TransCanada Corp.’s C$4.42 billion stock offering, the largest in Canadian history, helped fund its purchase of Columbia Pipeline Group Inc., while Suncor Energy Inc. raised C$2.88 billion in June to increase its stake in the Syncrude joint venture. Franco-Nevada Corp. raised C$1.28 billion in February to acquire future output from a Glencore Plc mine and Algonquin Power & Utility Corp.’s C$1.15 billion sale of convertible debentures in the same month helped pay for a U.S. utility.

Market Volatility

Companies held 197 stock sales in the first half, the fewest since the first six-months of 2005, according to the data. The half-dozen deals topping C$1 billion -- which included Hydro One Ltd. -- helped counter that slowdown in total sales.

“Market volatility, particularly in the resource sectors, has meant a reduction in the number of IPOs and fewer transactions by smaller Canadian enterprises," Kirby Gavelin, head of equity capital markets at RBC Capital Markets, said in an e-mailed statement.

Royal Bank of Canada retained No. 1 rank for arranging stock sales with a 21 percent market share, with Toronto-Dominion climbing four spots to No. 2 with 20 percent. Canadian Imperial Bank of Commerce remained in third, while Bank of Montreal slipped two spots to fourth. Rankings and data are as of July 1 and may change as more deals are recorded.

Energy Deals

Energy deals accounted for 54 percent of the market, with 44 deals for C$15.5 billion, including Enbridge Inc.’s C$2.3 billion secondary sale. Materials companies accounted for 15 percent of overall equity financing, led by Franco-Nevada’s offering and Silver Wheaton Corp.’s C$820 million stock sale in March to pay down debt after buying a silver mine in Peru.

IPO activity remained muted, with two large deals in June capping Canada’s slowest start ever for initial offerings. Mainstreet Health Investments Inc., an owner of U.S. seniors facilities, raised about C$140 million and listed on the Toronto Stock Exchange after its reverse takeover of Kingsway Arms Retirement Residences Inc. Kew Media Group Inc., a special purposed acquisition company designed to buy media properties, raised C$70 million.

“It has been a very slow IPO market in Canada so far this year, but we expect to see more IPOs come to market in the fall assuming constructive markets," TD’s Corona said.

Heightened Volatility

Looming IPOs include an anticipated $100 million sale of health-care software provider PointClickCare Corp., which is seeking a U.S. and Canada listing sometime after early September, along with real estate data company Real Matters Corp. and specialty television channel owner Blue Ant Media Inc., according to people familiar with those deals.

RBC’s Gavelin said he expects heightened volatility for the rest of the year as investors grapple with the implications to global economic growth from the U.K.’s vote to exit the European Union and the U.S. presidential elections.

“Uncertainty and volatility in markets will result in fund flows being biased toward a flight to safety -- defensive sectors and gold stocks will likely benefit," Gavelin said. “Any market dislocation will create buying opportunities and many investors will look to take advantage of lower share prices for Canadian corporates.”

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