IPO outlook ‘very dim' for Canada: report
ANGELA BARNES
Thursday, January 04, 2007
With no new income trust issues coming to market after the Oct. 31 federal government announcement on trusts, Canadian initial public offering activity slowed dramatically in the final quarter of 2006 and the outlook for 2007 looks “very dim,” according to PricewaterhouseCoopers LLP Canada.
“There is no doubt about the role of income trusts in Canadian capital markets, or about the impact of the federal government's new policy,” said Ross Sinclair, national leader of PwC's IPO and income trust services. “Not only has the market for new income trusts stopped in its tracks, the market for all new issues has stumbled,” he said. “Without a clear view of where the market for new issues is headed, companies have shelved plans for equity financing through the capital markets.”
But he added, “investors are still looking for a place to invest, and companies still need capital to grow;” it is just that they “aren't meeting on the TSX.”
The latest survey of Canadian IPO activity on the Toronto Stock Exchange and the TSX Venture Exchange shows that only 21 new IPOs were done in the last three months of 2006, which contrasts with the 32 done in the same period of 2005. The 21 new IPOs brought the total for 2006 to 116, down slightly from the 119 of 2005. The 21 IPOs in that final quarter were worth just over $1-billion. That brought the total value for the year to $5.8-billion, a sharp drop from the nearly $7-billion in the previous year.
Of the 21 issues done in the final quarter last year, only five with a value of $987-million were on the TSX. That compared with 19 new corporate and income trust issues worth $1.5-billion done on the TSX during the same period of 2005.
Income trusts had been a major factor on the capital markets the last three years and continued to be in the first three quarters of 2006 when 24 new trusts valued at $3-billion came to market, but that activity stopped completely in the fourth quarter after the federal government announced plans to start taxing trusts in 2011. Forty income trust issues with a total value of just over $5-billion were done in 2005.
Mr. Sinclair noted that the Canadian IPO market has averaged about $6-billion over the last three years and income trusts accounted for about 60 per cent of the market. He suggested that without any new income trust issues in 2007 or any new equivalent, the IPO market this year could tumble to less than $3-billion. “Numbers aside, the reality is that many middle market businesses will no longer have the access to the Canadian IPO market for capital” as a result of the government decision, he said.
Air Canada did the largest corporate IPO in 2006 with an issue valued at $525-million. Next largest was Addax Petroleum Corp. at $409.5-million. The biggest income trust IPO was that of Teranet Income Fund at $700-million. Next on the trust list was Jazz Air Income Fund at $235-million.
AI
