National Post (National Edition)
CANADIAN CAPITAL MARKETS RAISED $389B LAST YEAR, WITH RBC LEADING THE WAY.
RBC OVERALL LEADER, TD TOPS IN RAISING EQUITY
Underwriters spend their day matching issuers, who need capital, with investors, who seek opportunity. Each working day dealers, both here and abroad, find buyers for about $1.5 billion of new securities issued by Canadian entities.
In 2016, the underwriters found homes for $388.91 billion of freshly issued equity and debt by Canadian corporations and governments. It’s a business that employs thousands of people.
For all financings by all Canadian corporate and government issuers, RBC Capital Markets emerged as the leading firm last year: it ran the books on 213 transactions that raised $56.82 billion. TD Securities, whose comparative numbers were 192 and $53.82 billion, was the runner-up.
Four bank-owned firms, BMO, National, Scotia and CIBC, occupy the next four positions. Four foreignowned firms, BofA Merrill Lynch, J.P. Morgan, HSBC and Citigroup, round out positions seven to 10.
When financings are broken down by type of issuer and type of security, a different result emerges. TD Securities was the winner for raising equity — the highly competitive and most financially rewarding sector in the underwriting business. For all equity, TD ran the books on 64 deals that raised $11.97 billion; just ahead of RBC (69 deals and $10.847 billion.)
When a narrower definition of equity — the sale of common shares, trust units and convertible debentures — is used, TD was also the winner with 49 deals that raised $8.99 billion. That was a touch ahead of RBC, whose 51 deals raised $8.94 billion.
Almost $50 billion of common equity was raised in 2016. That amount, a record, represented a 13.4 per cent increase from 2015. Much of what was raised was for mergers and acquisitions, though the year’s largest such transaction, Enbridge’s purchase of Houston-based Spectra Energy Corp., which will create the continent’s largest infrastructure company, was done by way of a share swap.
Sante Corona, executive managing director and head of equity capital markets at TD Securities, said new equity issuance tracked stock market performance last year, struggling at first, and then recovering. “Acquisition-related financings, like those done by TransCanada, Inter Pipeline and Whitecap, drove new issue volumes and were very well subscribed by investors.”
Indeed, 2016 was characterized by the big deals: TransCanada came to the market on two occasions and raised $7.94 billion between the two deals. Total number of financings was down significantly from previous years, but nine issuers completed billion dollar equity financings. The numbers show that two-thirds of what was raised last year was for financings of at least $250 million.
Energy was the big issuing sector, responsible for 60 per cent of the total equity raised with the five largest equity offerings from energy companies or utilities. Aside from the two by TransCanada, Suncor raised $2.88 billion, Enbridge scooped up $2.3 billion, and Hydro One garnered $1.97 billion.) Two members of the billion dollar club — Encana and a secondary offering by CP Rail — used a somewhat different structure. The shares were mostly sold to U.S. investors by U.S. lead managers for a smaller fee than is the norm in Canada.
TD was the market leader for selling preferred shares, a sector that saw almost $10 billion raised last year. But 2016 was marked by minimal IPO issuance.
For the sale of corporate debt — a business that garnered borrowers $180.52 billion last year — RBC was the clear winner: it led 88 such deals that raised $24.65 billion, almost 40 per cent more than second placed TD (64 deals for $17.83 billion) and third place BMO (54 deals, $14.43 billion.) Of the amount raised — some of which was new debt, some of which was refinancings and some of which was for assetbacked offerings — $60.3 billion, or about one-third of the overall, was done domestically.
But the pattern of debt issuance differed from that of equity. Patrick MacDonald, co-head, debt capital markets, at RBC Capital Markets, said borrowing in the first half “was the slowest since 2010.”
But in the second half of the year, new issue volumes “rebounded as concerns surrounding macroeconomic and political events subsided, allowing issuers to take advantage of the favourable funding environment characterized by historically low government bond yields and tightening credit spreads.”
But as an indication of how the world is the oyster for Canadian companies, $120.22 billion — or twice as much was done domestically — was raised in foreign markets. As a result five of the top 10 underwriters (and 13 of the top 18) were foreign firms.
RBC’s MacDonald said Canadian debt issuers “continue to look to the U.S. market to meet U.S. dollar funding needs or to take advantage of favourable funding costs on a swapped equivalent basis.” By borrowing in that market, the issuers also achieve “funding diversification.”
Raising debt for governments is the third element of underwriting.
For 2016, National Bank Financial emerged as the winner. For the year, the firm, which over the years has expanded its prowess to lead issues other than for the province of Quebec, ran the books on 80 deals that raised $30.57 billion. TD Securities was in second place with 64 deals and $24.03 billion.
In 2016, governments of all stripes raised $148.83 billion — or about $3 billion a week. Of that amount, about three-quarters ($113.95 billion) was raised in the domestic market.