Y2K was still a major concern for Bay Street the last time quarterly stock sales were this bad.
The total value of new stock sales by Canadian companies from July through September fell 74 per cent to $1.8-billion from $6.8-billion year-over-year, according to data from LSEG Data & Analytics released Friday. That is the lowest total for any quarter since 1998.
The quarter also marked a historic low for the number of Canadian stock sales in a three-month period. Just 21 equity financing transactions were completed in the third quarter of 2024, the first time fewer than 29 deals were done during any quarter since the third quarter of 1998, when just 19 were completed.
“Our issuers are finding themselves hard-pressed to find a reason to raise equity,” Peter Miller, head of global equity capital markets at Bank of Montreal, said in an interview. “The more troubling part, as a Canadian, is they are not raising equity capital for new projects. That is a little bit troubling because you need capital to grow, and if they are not raising capital, that raises questions about the kind of growth we are going to see.”
Canadian economic growth has been mixed in recent months. Gross domestic product grew faster than expected in July but was flat in August, according to Statistics Canada, leading many economists to warn of slower growth overall through the rest of this year.
Nitin Babbar, global co-head of equity capital markets at RBC Capital Markets, the top investment bank for stock deals in the first nine months of 2024, said part of the reason stock sales have been muted is because interest rates stayed higher for longer than some investors were expecting.
“A year ago there was an expectation for rates to start going down very early in 2024, and what transpired was they did not,” Mr. Babbar said. “Inflation remained persistent, rates continued to be high, cost of capital was higher for many of the issuers. It was not necessarily a conscious decision to push out growth, but the environment that surrounded us perhaps did not compel people to be as growth-focused.”
Now that central banks have begun cutting interest rates in earnest, Mr. Babbar said, Canadian equity markets are well-positioned to rebound through the final three months of the year.
“What we are seeing in equity markets is really a deferral of some of the activity that we could have seen earlier,” he said. “Where we sit now, we do see growth as being a priority.”
Mining companies were the main driver of what little stock sales activity has occurred so far this year. Roughly half of the equity financing deals in the first nine months of 2024 were for mining companies.
The $1.5-billion bought deal that First Quantum Minerals Ltd. completed in late February remains the only stock sale of the year so far to generate more than $1-billion.
Corporate borrowing activity, which soared in the second quarter – nearly doubling on a year-over-year basis – remained well above average during the third quarter. Debt issuance from Canadian companies came in at $22.7-billion between early July and late September, representing a nearly 16-per-cent gain over the same period in 2023 and 33 per cent above the most recent third-quarter average of $17-billion since 2015.
Not only have businesses been taking advantage of lower interest rates, both for refinancing of existing debt and to borrow more, but according to Patrick MacDonald, the rates they can access already take future central bank cuts into account.
“We have already been able to capture a lot of the benefit that we were anticipating,” Mr. MacDonald, co-head of Canadian debt capital markets for RBC Capital Markets, the top investment bank for debt issuances in the first nine months of 2024, said in an interview.
“With the overwhelming demand that we are seeing, the underlying yields that have already fallen and the compression that we have seen in credit spreads all point to reasons to go now,” he said, “and not a lot by way of expected further falls in term funding rates.”
Merger-and-acquisition activity more than doubled during the quarter, to US$108.5-billion from US$46.2-billion in the third quarter of 2023, but that total includes US$57.9-billion attributed to Alimentation Couche-Tard Inc.’s offer to buy the Japanese parent of 7-Eleven. Stripping out that deal, as there is currently no guarantee the two sides will even begin formal takeover talks, leaves a quarterly M&A total deal value of US$50.6-billion.
That represents a 9.5-per-cent increase year-over-year, though it is still below the most recent 10-year third-quarter average of US$54.8-billion.
M&A activity has been stuck in a rut for most of the year, though Jeremy Fraiberg, co-chair of the mergers and acquisitions practice at Osler, Hoskin & Harcourt LLP – the top legal adviser for M&A in Canada during the first nine months of 2024 – also expects interest-rate cuts to spawn a turnaround.
“This could really be an inflection point,” he said in an interview. “The market still seems a little weird, but the fundamentals and the pipeline of deals that need to get done all suggest that there should be more robust activity to come. It is somewhat surprising that it hasn’t hit quite yet.”
Editor’s note: Data and analytics source Refinitiv has rebranded and is now known as LSEG Data & Analytics. This article has been updated accordingly.