More proof that these are desperate times: Yet another cash-starved Canadian government is weighing what to do with its prized assets. Twelve months ago, it was the province of Ontario; this year, it's the city of Toronto. Something must be in Central Canada's water.
Following Hydro One's initial public offering in 2015, which provided the province of Ontario with $5-billion for debt payments and transit funding, Canada's biggest city is weighing a possible deal for a similar asset, Toronto Hydro.
Considering how bad market returns have been in the past six months – the S&P/TSX Composite Index officially crossed into bear market territory on Thursday, falling 20 per cent from its September, 2014, peak – the city might seem crazy for even debating a privatization of Toronto Hydro right now. It isn't.
Just like Ontario, Toronto is barely treading water, financially speaking. It needs to do something major to be able to fund important initiatives like transit. (Ride a Toronto streetcar for a week and you'll quickly appreciate the city's pain.) Selling a top asset sale would tick the "major" box.
Better yet, bad markets can actually be good for selling something like Toronto Hydro. Utilities are safe, boring assets; their stocks typically won't appreciate as quickly as those for a hot new company, such as Shopify, but they pay stable dividends. And in a world rife with volatile returns, stability and yield are two things scores of Canadians crave right now.
Toronto Hydro has also got a precedent deal it can mimic. Hydro One just went public, and so far investors have shown that they like owning it. The shares are up 3 per cent since they started trading in November, while the broader Composite Index is down 9 per cent over the same period.
Hydro One's deal was also multiple times oversubscribed. Heavy demand translates into better sale prices, which provide taxpayers with the best bang for their buck.
None of this proves a Toronto Hydro privatization is the right thing to do. City council will have to debate all the available options. And because any IPO would take months to put together, maybe even a year, Toronto may miss the market sweet spot for launching a deal. If China's stock market keeps swinging, Canadian investors may want nothing to do with new stocks – even supposedly safe ones.
But our consistent thirst for yield gives Toronto more than enough reason to at least weigh a sale.