BAY STREET-Healthy 2010 crop of green IPOs seen in Canada
* Standard Steam, Talison Lithium may lead IPOs
* Cash-hungry clean power sectors mostly likely to list
* Recent secondary offerings seen as IPO precursor
By Susan Taylor
OTTAWA, Jan 24 (Reuters) - Canada's green energy sector looks set to deliver a healthy crop of public offerings in 2010 as a thaw in capital markets and a wealth of government incentives help lure back investors.
Bankers and analysts say a range of clean energy and technology companies are preparing for public listing, driven by a recovery in stock and energy prices, and hunger for cash to fuel development work.
"The IPO market is ready for a comeback," said David Williams, CIBC World Market's managing director of investment banking for power and utilities, who adds his firm is working on several such deals.
"The willingness of investors to listen to a story and understand the dynamics is back, whereas a year ago that would have been very difficult."
Interest in green energy faded during the financial crisis as oil, near $75 a barrel on Friday, fell from a record $147 to below $35.
Companies that needed cash to develop clean power projects were especially hard hit, Williams said. The market erased the value of so-called "development pipelines" on fears that financing to bring work to fruition would not be found.
But as access to capital and debt markets eased, those concerns were calmed and share prices recovered.
A growing number of secondary offerings from listed green companies is another harbinger of IPOs, said Duncan Stewart, a technology analyst with DSAM Consulting.
"When markets are really, really, really bad no one can raise money anywhere. When markets get a little bit better, companies that are already public, that already have a track record but need cash, can usually come back and raise C$10 million ($9.5 million) or C$20 million as a secondary," he said.
"We have seen some of those in the last little while and that is a fairly reliable 'first robin in spring' kind of sign that the IPO window is about to open."
Recent secondary offerings include wind and hydro power developer Plutonic Power Corp PCC.TO, Brookfield Renewable Power Fund BRC_u.TO, environmental services company Newalta (NAL.TO), and solar power equipment maker ATS Automation Tooling Systems (ATA.TO)
Some small Canadian players have found a financial lifeline in General Electric Co (GE.N), such as privately held Nexterra, which is jointly developing a biomass gasification system.
Clean power producers in the wind, solar and geothermal sectors are seen near the front of the IPO queue given a big appetite for cash to pay heavy up-front development costs.
BUSY BEGINNING TO YEAR
"The first six months of this year are going to be very busy," said Jacob Securities clean tech analyst Khurram Malik.
Home to 123 green companies, Canada's Toronto Stock Exchange and TSX Venture exchanges have more such listings than any other market in the world, parent TMX Group (X.TO) says.
Analysts say the sector has flourished in Canada because the country's expertise in bringing natural resource companies to market is also needed for green energy firms.
US Geothermal (HTM.A) CEO Daniel Kunz said "it's no accident" geothermal companies seek Canadian listings.
"There is a huge similarity in the front end of this industry to the mining sector, to natural resource industries, that you're very well familiar with here and invest in all the time," he said at a CIBC conference.
Strong analyst coverage is another reason a growing group of global green companies want to list in Canada, Malik said.
There were 11 new green listings and 110 financing deals in 2009 for C$1.8 billion in total capital raised, TMX Group said. In 2008, there were 11 listings and 62 financing deals for about C$454 million.
Standard Steam Canada Corp may lead the IPO party. The geothermal exploration and development company filed a preliminary prospectus in late 2009 for an IPO that media reports peg at C$65 million.
That follows a July 2009 IPO by Magma Energy Corp MXY.TO that was three times oversubscribed and raised more than C$100 million. It takes deep pockets for geothermal start-ups to develop the power projects, as each megawatt costs an estimated C$2 million to C$6 million to develop.
"Go big, because the larger you are, the lower your cost of capital and the more opportunity you have to overcome the two risks of the business: which are high front-end capital and exploration risk and discovery," said well-known mining entrepreneur Ross Beaty, who leads Magma.
Talison Lithium Ltd, which straddles the metals and green sectors, hopes to raise up to C$175 million in a planned IPO in Toronto and Australia [ID:nN24291546].
Demand for lithium has surged with the increasing use of lithium-based batteries in electronics and hybrid cars.
"I definitely am seeing a pickup on the IPO front," said Research Capital analyst Matt Gowing. "I think the stars are aligning for these guys again."
($1=$1.06 Canadian) (Reporting by Susan Taylor, with additional reporting by Nicole Mordant in Vancouver; editing by Jeffrey Hodgson, Rob Wilson)
- Tweet this
- Share this
- Digg this