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C$82.54 -3.9  -4.5%

Last Trade - 27/03/20

Sector
Financials
Size
Large Cap
Market Cap £67.64bn
Enterprise Value £223.28bn
Revenue £27.14bn
Position in Universe 1st / 2627

Pulled IPOs cap subdued year for Canadian deals, signal challenges ahead

Fri 13th December, 2019 12:00pm
By Nichola Saminather
    TORONTO, Dec 13 (Reuters) - The scrapping of a second
Canadian IPO in as many months this week caps a year of
declining activity, highlighting the challenges facing issuers
as trade uncertainty and the growth of passive investing weigh
on new offerings.
    The lucrative initial public offerings (IPO) business is
unlikely to see a significant pick-up in 2020 as it faces
headwinds from challenging economic conditions, which are set to
keep equity markets cautious, and from the rise of index funds,
investors said.
    That is not good news for Canadian banks, many of which have
large investment banking operations that suffered declining
earnings in fiscal 2019.
    Canadian IPOs are down 44% to C$937 million ($704 million)
so far this year, on course for their lowest level since 2016,
according to Refinitiv data. Banks in North America earn about
6% of IPO value as underwriting fees.
    Elliott Management-backed Triple Flag Precious Metals
dropped IPO plans on Wednesday, citing lackluster demand from
investors.  urn:newsml:reuters.com:*:nL1N28L0IL
    An economic cycle about a decade into expansion and global
trade uncertainties are contributing to investors' "reticence to
get involved in anything that might be perceived as additionally
risky," said Rick Hutcheon, president and chief operating
officer at RKH Investments. 
    As the fund management industry undergoes a structural shift
with more passive managers investing in index-tracking funds,
the appetite for IPOs, particularly involving smaller companies
unlikely to be included in benchmarks, will remain subdued, said
Bryden Teich, portfolio manager at Avenue Investment Management.
    Canadian banks posted an average 11% drop in fourth-quarter
earnings from their capital markets businesses versus a year
ago, Scott Chan, an analyst at Canaccord Genuity, wrote in a
note this week.  urn:newsml:reuters.com:*:nL4N28F2XU
    As capital markets businesses are "inherently market
sensitive, future performance could be adversely impacted by
macroeconomic conditions," Chan said. 
    Last month, waste management company GFL Environment
scrapped its listing, which was expected to be Canada's biggest
IPO, after institutional investors urged the firm to price its
shares below the marketed range.  urn:newsml:reuters.com:*:nL3N27M0RR
    Mergers and acquisitions have fallen 15% so far this year
from 2018 to C$226 billion, while equity deals dropped to C$28
billion, the lowest level in at least five years, according to
Refinitiv data.
    "Survival mergers," where struggling companies combine to
cut costs, could drive some pick-up in M&A activity in 2020,
Hutcheon said. This has been happening in the gold mining sector
and could pick up among battered energy companies, he added. 
    BMO Capital Markets  BMO.TO  and CIBC World Markets  CM.TO 
were the top bookrunners for IPOs this year, according to
Refinitiv. 
    Goldman Sachs & Co  GS.N  and TD Securities  TD.TO  were the
leading financial advisers for M&A deals, while Morgan Stanley
 MS.N  and RBC Capital  RY.TO  topped advisers on secondary
equity deals.
    
    ($1 = 1.3301 Canadian dollars)

 (Reporting by Nichola Saminather; Editing by Tom Brown)
 ((Nichola.Saminather@thomsonreuters.com; +1-416-687-7604;))
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