TransCanada Said to Raise $4.42 Billion in Record Sale

2016-03-29 16:16:56

TransCanada Said to Raise $4.42 Billion in Record Sale
By Doug Alexander, Scott Deveau and Rebecca Penty, Bloomberg NewsTransCanada Corp. raised $4.42 billion in the largest share sale in Canadian history, according to people familiar with the offering, sending energy financings in the country to the best start in at least two decades.

TransCanada’s sale to help fund its acquisition of Columbia Pipeline Group Inc. eclipsed Barrick Gold Corp.’s $4.33 billion issue in September 2009, according to data compiled by Bloomberg. Fifteen investment banks will get about $144 million for arranging the offering for the Calgary-based pipeline operator, based on fees of 3.25 percent cited in a March 18 regulatory filing.

TransCanada said March 17 it agreed to sell 92 million subscription receipts for $45.75 each to a group of banks led by Royal Bank of Canada’s RBC Capital Markets and Toronto-Dominion Bank’s TD Securities. The banks, which resell those securities, had an option to buy an extra 4.6 million subscription receipts, or 5 percent of the offering, which lifted proceeds to $4.42 billion.

Mark Cooper, a TransCanada spokesman, declined to comment on the size of the share sale.

Liquid Securities

The sale lifts announced equity financing in Canada’s energy industry to $8.59 billion this year, up 66 percent from a year ago and the best start to the year since at least 1994, the data show. Energy firms have been pursuing financing to fund takeovers and capital expenditure plans as the price of crude rallies from the worst downturn in a generation. Investors are only too willing to lap up shares.

“Investor demand has been very strong on recent transactions,” Kirby Gavelin, RBC’s head of equity capital markets, said in a phone interview. “They’ve been large transactions so certainly there’s a focus on large market cap, liquid securities, which attracts a broad range of global investors.”

In addition to TransCanada, other offerings included a $2.3 billion sale by Enbridge Inc., and $300 million offerings from Pembina Pipeline Corp. and Seven Generations Energy Ltd. Energy companies accounted for two thirds of the $13.1 billion raised from stock sales in the country, Bloomberg data show.

A turnaround in oil prices and lower volatility in the public markets are helping drive share sales. U.S. crude rose about 46 percent to $38.18 a barrel at 1:26 p.m. in New York on Tuesday from its lowest settlement of $26.21 on Feb. 11, marking a bounce in a price slump that has exceeded 21 months.

Bottom Feeding

“We’ve seen some confidence not only in overall markets but in energy markets, and that’s really helped,”  Benoit Lauze, head of equity capital markets at Canadian Imperial Bank of Commerce, said in an phone interview. “Then there are a lot of investors who want to make sure they’re well positioned for an upcoming rally, and they don’t want to miss the rally. That’s true in Canada and that’s true in the United States.”

The Chicago Board Options Exchange Volatility Index, a gauge of investor nervousness over the S&P 500, dipped to its lowest level since August earlier in March, and is at about half the level of its recent peak of 28.2 on Feb. 11 before oil’s recent rebound. Canada’s benchmark Standard & Poor’s/TSX Composite Index has surged about 10 percent since that February date while the S&P 500 has gained about 12 percent advance of the S&P 500 Index.

“You’ve got a combination of shorts trying to close their positions and you’ve got fundamental bottom-feeding type bigger funds actually trying to take on positions,” said Rafi Tahmazian, a partner and senior portfolio manager at Canoe Financial LP in Calgary. “Those are all positive signals that you’re in a healthy environment.”

IPO Drought

Still, so-called midstream companies TransCanada and Enbridge — considered safer investments that provide yield — are behind the bulk of the Canadian energy equity deals, showing investors are still opting for lower risk names, Tahmazian said. Canoe holds several oil and gas companies that have tapped equity investors in 2016, including Raging River Exploration Inc., Whitecap Resources Inc., Spartan Energy Corp. and Tamarack Valley Energy Ltd.

“With a lot of new equity being done, we are taking the buying pressure out of the market for a period of time,” Tahmazian said. “For that buying pressure to continue, you’re going to need more good news.”

Energy financings have swelled as Canadian equity markets endure the worst start for initial public offerings, with no initial sales above C$1 million announced except one investment fund. Avingstone Acquisition Corp. withdrew its C$110 million IPO while PointClickCare Corp., a healthcare software provider that aimed to raise $100 million in the U.S. and Canada, has held off on its sale, according to March regulatory filings.

TransCanada shares are little changed at C$49.49 from their March 17 close of C$49.42 before its announcement of its takeover and financing plan. Each subscription receipt is exchanged for one common share when the acquisition closes.

Proceeds are helping to fund TransCanada’s $10.2 billion acquisition of Columbia Pipeline, the company’s largest-ever deal, to expand its reach in the U.S. natural gas market. The takeover includes more than 15,000 miles (24,000 kilometers) of gas pipelines as well as underground storage and processing facilities owned and operated by Columbia.


Industries & Politics