Trusts dominate IPO market in first half 2005

(July 5, 2005) Income trusts continued to dominate the Canadian market, in terms of initial public offerings (IPOs) in the first half 2005, accounting for more than $1.8 billion of the $2.6 billion in new listings, according to a study by PricewaterhouseCoopers (PwC).

Trusts have become more and more common over the past three years as investors favour income over growth, but until now they had largely been based in their traditional sectors of energy and real estate, with a smaller contingent of “business trusts” operating in various other sectors.

But in the first six months of 2005, the trust structure has emerged as the favoured structure for most new public listings, regardless of the enterprise.

“Income trusts have emerged as a preferred structure for IPOs,” says Ross Sinclair, national leader for PwC’s IPO and income trust services. “Previously, trusts tended to be large and built on a high profile asset such as the Yellow Pages IPO that raised almost a billion dollars in 2003. Today however, IPOs are being structured as income trusts across the entire spectrum of the market.”

By the end of June, the consumer products sector represented the largest number and value of new offerings. Of the $750 million raised by IPOs in the sector, $606 million came from trust offerings. By comparison, IPOs in the traditional trust sectors of energy and real estate totaled $66 million and $75 million respectively. There were no trust IPOs in the utilities sector.

Trust IPOs are not only more numerous than corporate offerings, they are also much larger. The top trust offering for the period was the $250 million Aeroplan Income Fund, while the largest corporate offering, Aspreva Pharmaceuticals, was valued at only $112 million. The 10 largest trust offerings attracted over 1.4 billion, while the top 10 corporate IPOs had a combined value of just $670 million.

In the overall IPO market, industrial products generated the second highest total value, worth $367 million, but again the trusts accounted for the lion’s share, at $349 million.

Interestingly, the traditionally trust-friendly oil and gas sector was home to IPOs totaling $265 million, with only $66 million being generated by trust offerings.

The total number of IPOs on the senior TSX for the first half of the year is slightly higher than last year, with 34 offerings, compared to 32. But the gross value of these offerings is slightly lower, at $2.59 billion, compared to $2.63 billion. Including IPOs on the TSX Venture exchange, the total number of IPOs is up to 53, from 46 in 2004, with the gross value again falling to $2.657 billion from $2.682 billion.

“Across the board, it’s shaping up as a very good year for the IPO market,” says PwC’s Sinclair. “We haven’t seen any records set so far, but we are on track for a vibrant IPO market in 2005. It behooves an organization contemplating an IPO, particularly an income trust, to take advantage of this strong market.”

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