TORONTO, July 4, 2007 — New public offerings on Canada’s equity markets remained stalled in the first half of 2007 with the value of new issues off significantly from the same period of 2006, the PricewaterhouseCoopers (PwC) six-month survey of initial public offerings reveals.
Just $855 million in new equity reached markets in the first half of 2007, down from the $4.0 billion in the same period of 2006, when income trusts represented more than half of the buoyant market for new issues. There were 37 IPOs on the TSX and TSX Venture exchanges during the period January-June, 2007, down a third from the 57 new equity offerings in the same period of 2006.
The TSX accounted for just 13 of the new issues so far this year versus 36 in the first half of 2006.
The largest IPO in 2007 was the $148 million placement in the second quarter by Northstar Healthcare Inc. This is a far cry from the $700 million generated by the Teranet Income Fund IPO during the first half of 2006 when there were 13 new issues with a value greater than $100 million.
“The first half year results are in line with our expectations at the end of 2006,” said Ross Sinclair, national leader for PwC’s IPO and income trust services. “With the momentum of income trusts gone, the IPO market lacks the direction and enthusiasm of the last two years and is now in a very unusual state of running counter to the overall Canadian equity market. Any recovery is going to take some time; we probably won’t see it in 2007.”
The market for new equity issues tumbled in the last quarter of 2006 following the announcement by the federal government of a new policy on the taxation of income trusts. There were 116 new issues with a value of $5.8 billion in all of 2006.
Sinclair pointed to two items in the meagre results of 2007 that bear watching in the future.
“While the numbers aren’t large, the activity on the TSX Venture exchange suggests that the source and size of these placements is changing,” Sinclair noted. The average size of new issue on the TSX Venture jumped to $8 million so far in 2007, up significantly from the average of $4.5 million in all of 2006 and $4 million in 2005. There were 24 new issues for a total value of $190 million on the junior exchange during the first half of 2007.
“While the Venture exchange is traditionally the birthplace of junior resource stocks, we are starting to see other companies launch on this exchange. The increase in size of the average IPO suggests these aren’t penny stocks. It’s too early to call it a trend, but we may look back on this as the start of the rebuilding of the market from the bottom up,” Sinclair noted.
The $148 million placement by Northstar Healthcare Inc. is also noteworthy because it is an issue by a U.S.-based company utilizing a structure not common to IPOs, said Sinclair. The issue utilizes a cross-border tax structure which helped facilitate the offering of this high dividend yield security. “This offering is an interesting and unique development which is not necessarily the start of a trend, but it is testament to the desire in Canada for a higher yielding equity product – the market that used to belong to income trusts,” Sinclair observed.
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