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The Globe and Mail

Canadian capital markets appear ready for fall thaw

The screens at the TMX Broadcast Centre in Toronto are pictured on on Wednesday, July 11, 2012.

Matthew Sherwood/The Globe and Mail

A chill in Canadian capital markets that has kept equity and debt sales below 2011 levels looks set to thaw soon, thanks largely to fresh U.S. and European central bank stimulus plans.

The central bank's efforts to boost economic growth have triggered a rally in commodity prices and on Toronto's stock market. Canadian investment bankers said the resulting rise in investor sentiment could help push through a large backlog of deals before year-end.

The dismal market for Canadian initial public offerings was already given a boost last week by Robert Friedland, the billionaire mining magnate who advanced long-delayed plans to list a new venture, Ivanplats, on the Toronto Stock Exchange.

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"Access to capital is quite good and getting better, whereas maybe six or eight months ago issuers might not have had as ready access," said Daniel Nowlan, co-head of equity capital markets at CIBC World Markets in Toronto.

Equity issuance has languished in Canada so far this year, with companies raising less than $30-billion from stock offerings, a 16 per cent dip from last year, according to data from Thomson Reuters Deals Business Intelligence.

The number of deals is down 19 per cent, while the value of IPOs is down by nearly half.


But first-time access to equity markets should pick up as long as the stock market continues to show strength, according to Andrew Federer, head of Canadian corporate finance at Royal Bank of Canada.

"There are a number of IPOs being considered," he said.

Toronto's benchmark S&P/TSX composite index hit its highest level since March on Friday, led by mining, energy and other natural resources stocks that had dragged on the index's performance for much of this year.

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With valuations improving, bankers say publicly traded resource companies are more likely to issue stock to fund growth, and privately held entities will be encouraged to list.

That said, it's not just commodity-related companies that are eyeing equity markets.

"In the background, a lot of companies are getting themselves ready to go public," said Neil Manji, a partner in Price Waterhouse Coopers' IPO service group, pointing to sectors from retail to manufacturing as well as oil and gas, and mining.

"So when they see an opportunity they can take that opportunity and go to market fairly quickly."


A stronger economic outlook and improved sentiment are also expected to boost the sale of non-government debt, bankers said.

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Year-to-date sales of Canadian corporate bonds, asset and mortgage-backed securities and similar debt is down almost 6 per cent from 2011 at $75.7-billion.

One bright spot has been a surge in high-yield issuance. Sales of so-called junk bonds rose 72 per cent from 2011 to hit a record $8.6-billion.

With stock markets sluggish, many commodity-producing companies this year have been issuing debt rather than equity, noted Paul Taylor, a chief investment officer at Bank of Montreal's asset management unit.

One such company is Iamgold, a mid-tier gold miner that operates in West Africa, South America and Canada. It is selling $650-million worth of eight-year bonds this month as its shares sit some 35 per cent below a late 2011 peak.

Analysts said with two of the world's major central banks signalling they will keep rates low, corporate debt should prove popular with investors already tired of the dismal returns offered by safe-haven government bonds.

"Yields are on top of people's minds because things are so tight, but at the same time there is a safety and soundness argument," said Michael Ho, managing director of business development at DBRS, a Toronto-based rating agency.

Hybrid securities that offer regular payments, such as real estate investment trusts (REITs), are also expected to continue to sell well in the current environment.

"Unquestionably offerings with yields have been very popular and about 90 per cent of issuance has been from REITs or people who pay dividends or from convertible debentures or preferred shares," CIBC's Mr. Nowlan said.

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