Canadian IPOs seen picking up as crisis eases

By Pav Jordan - Analysis

TORONTO (Reuters) - The dry spell for Canadian IPOs has started to ease as investors cautiously return to the market for new equity issues after the global financial crisis kept many of them out of harm's way over the past year.

In the past week three companies came to market with well-received initial public offerings, and bankers see more on the near horizon. The fresh appetite for risk has slowly surfaced in tandem with an overall rise in stock prices during the spring.

Most of the Canadian new issues are likely to be in the mining and energy sectors due to strong commodity prices. But no matter what the industry, guaranteed revenue streams are likely to be a common denominator for the coming IPOs, experts say.

"You definitely saw over the past year a lot of cash moving to the sidelines, moving into government debt and other fairly low-return but stable investments, and now I think it has been moving back into the markets," said Nick Einhorn, a research analyst at Renaissance Capital, a U.S.-based IPO think tank.

Last week Canada's Magma Energy Corp, a geothermal power company active in the western United States and South America, raised C$100 million ($86 million). The offering was briefly the biggest in Canada in 13 months.

It was topped twice on Monday, first by a Capital Power Corp IPO priced to raise about C$500 million, and then by mortgage insurance company Genworth MI Canada, which priced an offering to raise some C$850 million.

"All three of these transactions show that there is money to be deployed for quality names," said David Skurka, an investment banker at Bank of Nova Scotia (BNS.TO), which co-led the Genworth deal.

Shares of all three companies will begin trading next week.

GLOBAL SURGE

Canadian IPOs in June alone far outstripped the C$702 million raised by Canadian companies in 18 IPOs last year. The spate of deals is part of a global trend that took root in the second quarter as new issues reached record highs, and top bankers forecast a further pick-up in IPOs by yearend.

Last week VisaNet, the Brazilian affiliate of credit card network Visa Inc (V.N) raised about $4.3 billion in that country's largest-ever IPO.

Investors still smarting from last year's crash in equity markets are moving increasingly into resource companies with guaranteed cash flow, especially gold, a safe haven against a weaker dollar and potential hyperinflation scenarios.

"It's still early to say this is the start of the next big wave of IPOs, but it's definitely an improvement and there are definitely signs that people are willing to invest in IPOs again," said Renaissance's Einhorn.

Investment bankers say corporate quality, rather than specific sectors, will determine which companies attract investors in the current climate.

"While this is the outcome of renewed confidence in the markets, I wouldn't say the Canadian IPO market is wide open," said Ted Larkin, managing director for equity capital markets for UBS Canada. "It certainly is open for the right story."