* Fresh turbulence could derail confidence
* Canadian IPOs on track for 60 pct decline this year
* Slide reflects worsening outlook for global economy
* Commodity producers more likely to go public in Canada
* Valuations based on long-term outlooks for commodities
By Pav Jordan
TORONTO, Aug 7 Canada's IPO market could roar
back to life in the final months of 2011 after a dismal first
half -- but only if a fresh bout of global market turbulence
doesn't overwhelm any revival.
So far this year, Canadian initial public stock offerings
are on track for a 60 percent decline in 2011. But investment
bankers say commodity producers could get the market sailing
again once the summer doldrums are over.
"People are looking at the next three weeks and recognizing
that the dog days of summer are upon us, and it's not
necessarily indicative of the kind of robust market environment
that could well exist as we get further past that August
period," said a capital markets expert from one of Canada's top
IPO markets thrive on healthy economies that paint
sustainable growth profiles for companies going public, and
Canada is no exception. Canadian IPOs virtually disappeared
when global economic turmoil erupted in 2008, a year in which
only C$700 million ($714 million) was raised.
The market sputtered back to life in 2009, with C$1.97
billion raised. Last year it powered ahead to C$5.5 billion as
investors grew confident the global economy would not come to a
This year, though, the doubts returned. Canadian companies
raised C$1.7 billion by going public from Jan. 1 to June 30,
Thomson Reuters data shows, compared with C$3.17 billion in the
first six months last year.
Bankers say the decline reflects a worsening global
economic outlook, but they are not yet prepared to say if the
recent market mayhem will wreck chances of a rebound in the
final months of 2011.
"The volatility through the summer has created a 'lets see
how this all pans out' attitude," said one banker who could not
be named due to company policy.
Toronto-listed stocks plunged by as much as 4 percent on
Friday to their lowest since August 2010. It was the main stock
index's biggest intraday drop in two years as investors weighed
the enduring debt crises in Europe and the United States, and
the prospects of stalled growth in the world's biggest
"So now you're into 2011, and the economy is a key concern
again and it is difficult to market off of that," said Neil
Manji, head of national IPO services for PwC, the global M&A
"It's a mixed bag, but the overriding fact here is that
volatility like this hurts markets. It hurts it from the
ability to price an IPO and keep it alive."
Bankers say market turbulence will have the greatest impact
on smaller companies, as investors assume defensive positions.
Mutual fund managers may keep more cash available to fund
redemptions as markets bounce around, and may be less inclined
to invest in an IPO, a leading banker said.
Only two IPOs with a value of C$20 million-plus have been
pulled so far this year, but many companies in the process of
going public are moving slowly and weighing their options.
Others are holding back, one of the reasons the IPO
pipeline is overflowing with potential deals. Companies are
waiting for the right moment to strike.
"I would say that looking at our list and the Street, it's
one of the fullest pipelines I've ever seen for IPOs," said
Peter Miller, head of equity capital markets for the Bank of
Montreal (BMO.TO), Canada's fourth-largest lender.
"There are numerous transactions in the pipe over C$500
million, and some are well over."
Even so, the size of IPOs has shrunk in 2011, with the
largest ones in the range of C$100 million to C$300 million. In
2010, Athabasca Oil Sands (ATH.TO) went public with a C$1.35
The traditional lull in investment activity in summer
makes it difficult for bankers to fully gauge investor appetite
and issuer confidence in the months ahead.
Still, bankers are hopeful, basing their optimism in a
second-half recovery on Canada's status as a global commodities
powerhouse and the bullish outlook for energy, grains and
The Toronto Stock Exchange already has more miners listed
than any other, and BMO's Miller said the sector could lead the
IPO market because transactions are backed by the long-term
outlook for prices.
"They are based on long-term commodity forecasts, and
despite the bumpiness that's going on right now, there's still
a depletion of base metals and precious metals globally," said
Miller. "And if you believe in the Asian story for growth, all
that supports attractive long-term commodity prices."
(Additional reporting by Allison Martell; Editing by Frank