TSX & TSX Venture: Trading the energy world
Canada’s oil and natural gas resources are not the only playgrounds for international energy players: Its financial markets are also emerging as magnets for foreign-based resource companies seeking to raise capital.
The Toronto Stock Exchange and the junior TSX Venture Exchange are collectively home to 35% of the world’s publicly listed oil and gas companies, and 19% of globally listed oil field services companies — the highest concentration of energy listings anywhere.
Combined, the two exchanges are home to slightly fewer than 400 pure oil and gas players, far ahead of its nearest rival, the Australian Stock Exchange, which boasts about 224 oil and gas companies on its ticker. The New York Stock Exchange and junior NYSE market feature about 163 energy listings combined, while the London Stock Exchange and its Alternative Investment Market have collected 147 energy firms, latest available data show.
Of the 400 Toronto listings, more than a quarter are international companies, as intrepid oil-and-gas executives scour isolated basins in the most remote corners of the world but, seek the shelter of robust regulations and corporate governance of Toronto exchanges.
“We have been adding international companies at the rate of anywhere from 20 to 65 a year, and ... as market conditions improve and uncertainty wanes away in favour of optimism, I think we will see those rates rise,” Kevan Cowan, president of TMX markets and group head of equities, said in an interview. He added that the TMX exchanges have led the world in new listings for four years in a row, and raised more capital in the energy space in 2011 than other exchanges.
Perhaps more surprisingly, TMX Group identifies itself as the exchange with the highest number of clean-technology companies in the world.
Canadian regulators have stolen a march over the U.S. Securities and Exchange Commission and AIM thanks to a less-onerous regulation regime to attract companies, said Barry Munro, oil and gas leader at Ernst & Young in Calgary.
“Canadian regulators generally understand the oiland-gas business, and they have a practical and flexible regulatory environment,” Mr. Munro said. “The SEC is the best example where the regulatory burden is so heavy that it chases people away.”
But it is Toronto’s deep and diverse investor appetite that is making these listings work. More than 40% of trading on the two exchanges originates outside of Canada, transforming the exchange into a global energy trading hub.
“As the profile of the TSX and TSXV opportunity has increased internationally, we are seeing a lot more international investors and portfolio managers investing in these companies — we are going to see a lot of increased financing activity,” Mr. Cowan said.
Investor appetite is also fuelled by the country’s large analyst community that covers juniors and seniors at a much earlier stage than in other markets, Monica Rovers, TMX’s head of business development, told a conference in December. “For example, a $5-million to $6-million company going public in the States just would not get the attention of investors or analysts.”
Another key differentiator is the smoother graduation process for companies from the junior TSXV to the TSX.
About 700 companies have moved up from TSX Venture to TSX since 2000 and one in four TSX composite index companies is actually a TSX Venture company, Ms. Rover said.
This is where London’s AIM is failing its member companies.
“Listing on the AIM is an expensive endeavour,” E&Y’s Mr. Munro said. “In the two or three evolutions of AIM there have been instances where companies have been orphaned. Companies go through a significant process, get listed on AIM, and then will have virtually no investor following.”
The TSX saw 20 new energy listings in 2012, dramatically fewer than the 49 additions i n 2011. Global economic uncertainty last year was a recipe for lower trade volumes, fewer IPOs and even delistings across the global financial markets, and Canadian exchanges were no exception.
But 2013 appears to be more promising.
“The IPO pipeline is strong, of course, but the economic uncertainty has been difficult for some companies to get over the goal line,” Mr. Cowan said.
Mr. Munro expects international listings in Canadian markets to pick up in the medium term.
“Bluntly, some entrepreneurs may see far better opportunities [abroad] than what they see in the challenging Canadian market in the world of low gas prices,” said Mr. Munro, adding that, for their part, investors like the risk-reward trade off of investing in Canadian companies with international exposure.
TMX Group and the London and Australian exchanges have been chasing internationally focused energy companies, especially those operating in Africa, which has emerged as a hydrocarbons hot spot over the past few years.
“Africa is really hot. There are half-a-billion-barrel discoveries — the basin is so underexploited,” Mr. Munro said.
While investors can get African exposure with BP PLC, Exxon Mobil Corp. or Royal Dutch Shell PLC, which have interests in the continent, it is hard to imagine you can get exposed to the upside the continent is expected to offer over the next few years.
For the fearless international investor looking for direct Africa exposure, the integrated Oando Energy Resources Inc., may be a better fit.
The Lagos-based company moved up from TSVX to the main market in July and acquired Chevron Corp.’s Nigerian assets for US$1.79-billion in December. The move potentially allows Canadian and international investors to participate in a slice of Nigerian hydrocarbons assets, without the regulatory rigmarole of the Nigerian financial market regulators.
TMX Group is also preparing a roadshow to build on its 40 South American listings, and is looking across the continent to attract companies.
“This will continue to be a growth area,” Mr. Munro said. “The stock exchanges themselves have been very aggressive, both TSX and TSXV and AIM, at promoting the development of markets. More fundamentally, there are attractive places in the world to invest and there will continue to be a flow of capital into these types of companies that drive the number of listings on the TSX.”