Skip to main content

Tepid investor demand for Hydro One shares means underwriters, led by RBC and CIBC, were holding as much as $1.4-billion worth of stock as of Thursday.

Tim Fraser/The Globe and Mail

Ontario's move to unload a $2.8-billion stake in Hydro One Ltd. has hit a standstill after investors balked at the stock sale, leaving underwriters with as much as half of the shares unsold.

The province's cash-strapped Liberal government announced the huge offering Monday, selling 120 million shares at $23.25 apiece to a syndicate of investment banks on a bought-deal basis. That means the shares were purchased up front by the underwriters in hopes of reselling them quickly to public investors.

But tepid investor demand for the issue means the underwriters, led by Royal Bank of Canada and Canadian Imperial Bank of Commerce, were holding as much as $1.4-billion worth of stock as of Thursday, according to people familiar with the situation.

Story continues below advertisement

Read more: Ontarians will face hydro-bill shock after short-term relief, PCs say

Because such a large slice of the deal remains unsold, the underwriters will likely be forced to cut the already discounted offering to unload the rest. On Thursday, the stock closed at $23.08 in Toronto, down 4 per cent from Monday's close. CIBC declined comment. RBC did not reply to a request for comment.

Under the bought deal, the Ontario government received its funds up front. It's the underwriters who are liable for any unsold stock, and it is unusual for such a large portion to remain.

The weak appetite stands in stark contrast to a string of recent share sales in the oil patch that have sold briskly. TransCanada Corp., Cenovus Energy Inc. and others have issued equity to fund major acquisitions in hopes of cutting costs as oil prices languish, generating hefty fees for investment banks.

Hydro One is viewed differently. This is the third time Premier Kathleen Wynne's Liberals have unloaded shares, lowering the province's stake in the utility to 49.9 per cent.

Investor fatigue has set in following an initial public offering in November, 2015, and a subsequent sale in April, 2016 – which means this isn't a new story, such as a takeover, for investors to get excited about. Meanwhile, Hydro One lacks exposure to investors in the United States enjoyed by big energy firms, making it tougher to sell.

Last week, president and chief executive officer Mayo Schmidt said the utility saw potential opportunities tied to consolidation of Ontario power distributors.

Story continues below advertisement

He also cited "terrific opportunities" for partnerships in the U.S., without elaborating.

"We are also poised for growth in new markets where our deep scan over the past number of months has identified opportunities that we believe would be accretive on every measure," he told analysts on a conference call.

The bought deal announced Monday includes an over-allotment option for banks to sell as much as 12 million extra shares over 30 days.

The sale of Hydro One shares has been politically unpopular for Ms. Wynne, whose support has flagged ahead of an election next year, partly due to concerns over sky-high electricity prices.

Yet selling its stake in the Crown utility has netted the debt-saddled province nearly $9-billion so far, money the Liberals have earmarked for key infrastructure projects.

Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the authors of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies