Canadian capital markets slowed during the third quarter of 2005 with $17.7-billion in new debt and equity financings completed, down 12 per cent from the same period a year earlier.
Total financings during the first nine months of 2005 were $62.7-billion, almost unchanged from the $61.1-billion in 2004, but well up from the $47.9-billion in 2003, according to prospectuses filed with Canadian securities regulators.
Some expect income trust financings, which have been the hottest area in the equity sector, to cool off in response to the federal government's decision to assess the tax consequences and impact on corporate reinvestment. Initial public offerings of income trusts, in particular, are expected to slow.
During the third quarter, 45 different income trust, real estate investment trusts and energy trusts raised $5.2-billion in equity and debt, or almost 30 per cent of the value of all the deals completed.
"There might have been some stalling for a few weeks, but some equity funds are going ahead with new offerings," said Matthew Kolodzie, senior vice-president, energy, for Dominion Bond Rating Service Ltd.
The major common equity issues sold during the third quarter included $300-million (U.S.) in shares by Fairfax Financial Holdings Ltd. and a secondary offering of 7.5 million common shares of Nexen Inc. for $406.9-million.
Businesses are also expected to continue to issue long-term debt for the balance of the year in order to take advantage of the low level of interest rates in Canada, he said.
There were about $8.7-billion (Canadian) of new corporate bond deals done during September, which was one of the heaviest months of new issue activity in a few years, according to a recent report by Jason Parker, a credit analyst with BMO Nesbitt Burns Inc. "Inventories were relatively clean by month end, suggesting there is still money available to be put to work in the Canadian corporate bond market," he said.
Among the major deals done during the third quarter was the issue of $1.3-billion in 3.75-per-cent debentures, due in 2015, by Canadian Imperial Bank of Commerce; $300-million in 4.7-per-cent senior debt by Cameco Corp.; $200-million in 5.61-per-cent medium-term notes by Canadian Tire Corp. Ltd.; $575-million in medium-term notes by Citigroup Finance Canada Inc.; $400-million (U.S.) in 7.12-per-cent notes by Domtar Inc.; $400-million in 5.5-per-cent debentures by Thomson Corp.; and $1-billion in two note issues by Teck Cominco Ltd.
In Canada, there has been a pickup in capital spending even outside of the energy sector, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. The annual growth rate in business borrowing from banks is up 9 per cent from a year ago, he said.
Business has been relatively steady in the asset-backed securities market. Recent deals include the sale of $217.4-million (Canadian) floating rate notes by Cards II Trust backed by VISA credit receivables.
Mortgage-backed security issues completed include $341.5-million by Canada Mortgage Acceptance Corp.; $443.3-million by Merrill Lynch Financial Assets Inc.; $450-million by BMO Capital Trust; and a $551.1-million issuance of mortgage pass-through certificates by Schooner Trust.
Canadian bond desks have also been kept busy by private placements by non-traditional foreign issuers who lower their effective borrowing costs by issuing debt in different jurisdictions as part of interest-rate swap deals, one bond dealer said. The bond desks were also helped by changes made to foreign content rules on tax-deferred investment vehicles and the strong Canadian dollar, he said.
American corporations have shown an unwillingness to increase their long-term debt, said David Rosenberg, North American economist with Merrill Lynch Pierce Fenner & Smith Inc., in a recent report. "Maybe the goal on the part of the corporate sector is to have the balance sheet in good enough shape and sufficient cash on hand to weather the next downturn."
© The Globe and Mail
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