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

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TORONTO(Reuters) – A recent C$4.6 billion capital raise by Enbridge (NYSE:ENB) and a raft of new U.S. deals have spurred optimism for a revival in Canadian equity capital markets (ECM) issuance, bankers and lawyers said.

Enbridge’s jumbo equity sale to finance a portion of its acquisition of three utilities from Dominion Energy (NYSE:D) propelled Canadian ECM issuance to a two-year high of C$6.7 billion ($5 billion) in the third quarter of this year, according to data from Refinitiv.

“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.

“We’re certainly in our team talking about a progressive opening of market between now and the end of the year and we’re certainly more optimistic going into 2024 in terms of what is achievable,” he added.

Canadian ECM issuance hit a more-than 22-year low of C$13 billion in 2022 and IPOs in Canada fell to a three-year low in 2022 to C$1.6 billion and are at C$201.7 million for the first six months of the year, according to Refinitiv data.

Hopes of a revival have, however, increased in recent weeks after a flurry of new large offerings in the Unite States, and Enbridge’s deal.

Marketing automation firm Klaviyo, Arm Holdings (NASDAQ:ARM) and Instacart all debuted recently to strong initial demand. On Monday, Enbridge’s shares were trading some 1.8% higher than the price they were placed at on Sept. 8.

That has encouraged market participants to hope that demand for IPOs, which had been hit hard over the last two years by the pandemic, geopolitical tensions and interest rate hikes, may be on the rebound.

“There is a long list of companies out there…that have been doing quite well over the last while and that are starting to dust off their IPO plans and their work plans to reinvigorate the process,” said Jeff Hershenfield, co-head of the Capital Markets and Public Mergers & Acquisitions Group at law firm Stikeman Elliott in Toronto.

Stephen Pincus, a partner at the Toronto office of law firm Goodmans, said market participants were hopeful of an IPO window opening up some time over the coming months.

Canada’s main stock exchange operator TMX Group has about 1,600 companies in its initial public offering (IPO) pipeline, with more than half of them technology companies, CEO John McKenzie said in a recent interview.

But not many dealmakers are expecting a rush of supply with an uncertain macroeconomic environment still keeping secondary equity markets volatile.

The post-sale performances of shares of Klaviyo, Arm and Instacart also tailed off after a strong first-day opening.

The shares dropped well below their first-day high, potentially limiting a comeback in Canadian equity capital raisings and IPOs.

“The fact is the market is materially better than it was six months ago, but we are not out of the woods yet and investors generally are still not receptive to hearing about riskier earlier stage stories,” said Neil Selfe, founder and CEO at advisory INFOR Financial Group.

“We do not have enough data to declare the IPO market open. Our own view is that we are still 12 to 18 months away from a robust IPO market,” he added.

($1 = 1.3412 Canadian dollars)