Home BusinessMarket Enbridge C$4.6 billion equity sale raises hopes for Canada market revival

Enbridge C$4.6 billion equity sale raises hopes for Canada market revival

by Clarence Jones

Optimism Rises for Revival in Canadian Equity Capital Markets

A recent capital raise by Enbridge, along with several new deals in the United States, has sparked hope for a revival in Canadian equity capital markets (ECM) issuance, according to bankers and lawyers. Enbridge’s C$4.6 billion equity sale, aimed at financing its acquisition of three utilities from Dominion Energy, propelled Canadian ECM issuance to a two-year high of C$6.7 billion ($5 billion) in the third quarter of this year.

“I think there is evidence out there that for the right transaction for the right reasons, investors will show up,” said François Carrier, co-head of Desjardins Capital Markets. He expressed optimism about the progressive opening of the market between now and the end of the year, and the prospects for the market in 2024.

Canadian ECM issuance hit a more-than 22-year low of C$13 billion in 2022, while IPOs in Canada fell to a three-year low of C$1.6 billion. However, recent developments, including Enbridge’s successful deal and a series of strong IPO debuts in the United States, have raised hopes of a revival. Marketing automation firm Klaviyo, Arm Holdings, and Instacart all experienced strong initial demand, and Enbridge’s shares have been trading higher than their placing price since September 8.

These positive signals have led market participants to believe that demand for IPOs, which have been impacted by the pandemic, geopolitical tensions, and interest rate hikes, may be on the rebound. Jeff Hershenfield, co-head of the Capital Markets and Public Mergers & Acquisitions Group at law firm Stikeman Elliott, stated, “There is a long list of companies out there… that are starting to dust off their IPO plans and their work plans to reinvigorate the process.”

TMX Group, the main stock exchange operator in Canada, currently has around 1,600 companies in its IPO pipeline, with more than half of them being technology companies, according to CEO John McKenzie. Despite these encouraging signs, many dealmakers remain cautious due to the uncertain macroeconomic environment, which continues to keep secondary equity markets volatile.

While the post-sale performances of recently debuted companies like Klaviyo, Arm, and Instacart saw a decline after their strong opening, the overall market conditions are still seen as being better than they were six months ago. However, Neil Selfe, founder and CEO at advisory INFOR Financial Group, cautioned that investors are still not receptive to riskier earlier stage stories. He believes that a robust IPO market may still be 12 to 18 months away.

The capital raise by Enbridge and the flurry of new deals in the market have certainly provided a glimmer of hope for a revival in Canadian ECM issuance. However, the road to a fully resurgent IPO market may still be paved with challenges and uncertainties. Market participants will continue to monitor the situation closely and adapt their strategies accordingly.

(Note: All currency conversions based on the exchange rate at the time of writing)

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