Bloomberg, Doug Alexander and Sean B. Pasternak, 8 January 2007
..... The trusts also were lucrative for investment banks. Underwriters charge fees of about 5 percent for trust sales, compared with about 4 percent for common-stock offerings, said Sante Corona, head of equity capital markets at Toronto-based TD Securities.
Alaris, which owns stakes in companies including realtor Century 21 Canada and health clinics owner LifeMark Health Inc., would have paid 6 percent to banks including CIBC and RBC Capital to arrange the sale, for a total of C$6.9 million in commissions.
"We've got a structural change, so that's going to have some impact on the market," said Kirby Gavelin, 48, head of equity capital markets at Toronto-based RBC Capital.
The outlook for Canada's 2007 IPO market "looks very dim" after sales all but stopped in the final three months of 2006, according to a Jan. 4 report by PricewaterhouseCoopers Canada. For the past three years, IPOs raised an average of C$6 billion annually, with income trusts accounting for about 60 percent.
"Without any new income trusts in 2007 or any new equivalent, the 2007 IPO market could move down to less than C$3 billion," said Ross Sinclair, national leader for IPO and income trust services at PricewaterhouseCoopers.
Banks oversaw $9.24 billion of income trust share offerings in 2006. That was down from a record $11.6 billion in 2005, when the vehicles represented 46 percent of total sales, including IPOs and secondary offerings.
The sudden halt to new trust deals leaves a void for Canada's banks to fill. The average yield of the S&P/TSX Capped Income Trust Index is 10 percent, compared with 2.4 percent for stocks on the S&P/TSX Composite Index, the Canadian market benchmark.
"There's going to be a demand for high-yield product," said Peter Myers, 47, who oversees the equity capital markets group at Bank of Montreal's BMO Capital Markets, which generated 29 percent of its sales of new equity last year from income trusts. "Will there be other structures? I suspect there will be, and if it's as simple as a high-payout common share, so be it."
Unlike in the U.S., all of Canada's biggest securities firms are owned by commercial banks, and those institutions are growing enough in other markets to increase earnings this year without fees from trust IPOs, said Darko Mihelic, an analyst at CIBC World Markets. CIBC executives have said previously that trust sales represented less than 1 percent of the company's revenue last year, when the five biggest banks had record profits.
Below is a table of the rankings of new equity issues for Canadian banks, including the percentage of sales from income trusts, according to data provided by Bloomberg.
..... The trusts also were lucrative for investment banks. Underwriters charge fees of about 5 percent for trust sales, compared with about 4 percent for common-stock offerings, said Sante Corona, head of equity capital markets at Toronto-based TD Securities.
Alaris, which owns stakes in companies including realtor Century 21 Canada and health clinics owner LifeMark Health Inc., would have paid 6 percent to banks including CIBC and RBC Capital to arrange the sale, for a total of C$6.9 million in commissions.
"We've got a structural change, so that's going to have some impact on the market," said Kirby Gavelin, 48, head of equity capital markets at Toronto-based RBC Capital.
The outlook for Canada's 2007 IPO market "looks very dim" after sales all but stopped in the final three months of 2006, according to a Jan. 4 report by PricewaterhouseCoopers Canada. For the past three years, IPOs raised an average of C$6 billion annually, with income trusts accounting for about 60 percent.
"Without any new income trusts in 2007 or any new equivalent, the 2007 IPO market could move down to less than C$3 billion," said Ross Sinclair, national leader for IPO and income trust services at PricewaterhouseCoopers.
Banks oversaw $9.24 billion of income trust share offerings in 2006. That was down from a record $11.6 billion in 2005, when the vehicles represented 46 percent of total sales, including IPOs and secondary offerings.
The sudden halt to new trust deals leaves a void for Canada's banks to fill. The average yield of the S&P/TSX Capped Income Trust Index is 10 percent, compared with 2.4 percent for stocks on the S&P/TSX Composite Index, the Canadian market benchmark.
"There's going to be a demand for high-yield product," said Peter Myers, 47, who oversees the equity capital markets group at Bank of Montreal's BMO Capital Markets, which generated 29 percent of its sales of new equity last year from income trusts. "Will there be other structures? I suspect there will be, and if it's as simple as a high-payout common share, so be it."
Unlike in the U.S., all of Canada's biggest securities firms are owned by commercial banks, and those institutions are growing enough in other markets to increase earnings this year without fees from trust IPOs, said Darko Mihelic, an analyst at CIBC World Markets. CIBC executives have said previously that trust sales represented less than 1 percent of the company's revenue last year, when the five biggest banks had record profits.
Below is a table of the rankings of new equity issues for Canadian banks, including the percentage of sales from income trusts, according to data provided by Bloomberg.
;
Equity Offerings Amount Raised Pct in
Underwriter in 2006 in Trusts Trusts
BMO $2.18 Bln $641 Mln 29%
CIBC $4.97 Bln $3.05 Bln 62%
RBC $6.18 Bln $2.68 Bln 43%
Scotiabank $1.73 Bln $405 Mln 23%
TD Bank $2.74 Bln $1.35 Bln 49%
GMP $1.92 Bln $5.2 Mln N/A
Total $28.1 Bln $9.24 Bln 33%
