Equity issuance remained weak in Q2

Canadian equity issuance continues to languish, as global economic uncertainty deters companies from floating fresh stock, according to a report from the Investment Industry Association of Canada (IIAC).

Equity financing activity in the second quarter increased by just 2.6% over that of the first quarter, with $11.6 billion in capital raised. On a year-over-year basis, however, that marks a decline of 26.9%.

“Uncertainties in the global outlook remain, and this is adversely impacting financing activity,” said Jack Rando, director of Capital Markets IIAC. “Equity financings in the second half of the year may additionally be impacted from the recent pullback in oil and other commodity prices as well as any further deterioration in economic health.”

Common equity financings — through both private placements and secondary offerings — were down 37% from last year, to $6.9 billion. Of that total, $1.3 billion came from a single issue, TransCanada Corp.

The energy sector accounted for nearly 39% of all common equity issuance in Q2, while materials stocks raised about 21% of the total.

On a year-to-date basis, 1,183 companies have raised $22.9 billion through common equity issuance.

There was some improvement in initial public offerings (IPOs), with 73 companies coming to market for the first time, raising more than $700 million. One standout in the IPO market was asset manager Sprott Inc., which raised $200 million, representing more than 28% of total IPO issuance by value.

Even the income trust sector saw an increase in issuance, raising $1.8 billion in capital during the period.

The brightest spot on the market, however, was in preferred shares, as financial firms sought to shore up their capital bases without turning to the debt market. Preferred shares raised $2.3 billion in the quarter, up 59% from Q1 and 49.2% year-over-year.

Scotiabank issued $300 million in preferred stock, while Bank of Montreal and TD Bank each issued $250 million, and RBC raised $200 million.

While global jitters curtailed equity issuance, Canadian market performance was among the best in the world, with the S&P/TSX Composite Index rising 8.4%. Trading on the TSX tracked last year’s volume, with 75.8 billion shares changing hands in the quarter.

Juniors saw an increase in trading, as soaring energy prices drew investors toward small energy companies.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(08/25/08)