The slowdown in domestic underwriting reflects a worldwide downturn, with activity in global equity capital markets declining 67 per cent through the first six months of 2022, setting a 17-year low.Adrien Veczan/The Canadian Press
Corporate finance activity across the country fell sharply over the past three months, as volatile markets, rising interest rates and recession fears cut into equity and debt underwritings.
Canadian companies sold $2.8-billion of stock in the second quarter of 2022, a 78-per-cent decline from the same period a year ago, according to statistics released Wednesday by data service Refinitiv. Corporate debt offerings fell by 67 per cent, quarter over quarter, to $7.7-billion.
The slowdown in domestic underwriting reflects a worldwide downturn, with activity in global equity capital markets declining 67 per cent through the first six months of 2022, setting a 17-year low.
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The one bright spot for capital markets is in mergers and acquisitions, which continue at a torrid pace. Canadian companies were involved in $62.8-billion worth of takeovers in the second quarter of 2022, up 7 per cent from the same period in 2021. Globally, last year set records for M&A activity.
The downturn in equity and debt financings follows two years of record-breaking underwriting activity, leaving corporate Canada flush with cash. When interest rates began rising and equity markets dropped – the benchmark S&P/TSX composite index is down 12 per cent year to date – investment bankers said companies had the ability to wait out the storm.
“While it’s certainly possible to raise capital, most companies have strong balance sheets and will wait to see valuations normalize and interest rates stabilize,” said Peter Miller, managing director at BMO Capital Markets.
Over the first six months of the year, the investment dealer arm of Bank of Montreal BMO-T was Canada’s top stock underwriter, raising $952-million for clients in 16 transactions. BMO’s deals included one of the few initial public offerings (IPO) completed this year, a US$169-million debut from mining company Ivanhoe Electric Inc.
“Our message to clients is be nimble, be prepared to move quickly if markets are supportive,” said Mr. Miller, BMO’s head of equity capital markets. He said corporate customers are realizing that several of the factors underlying recent market weakness – the prospect of an economic slowdown, Russia’s war in Ukraine and supply chain disruptions – are long-term economic issues that will take time to resolve.
In a sign of how little activity is taking place, Morgan Stanley MS-N and Goldman Sachs GS-N rounded out the list of the country’s top five equity underwriters year to date, even though the Wall Street dealers only led one transaction, a $913.5-million IPO from contact-lens maker Bausch & Lomb Inc. BLCO-N
In debt markets, investor demand far outstrips the supply of bonds coming from companies that face paying rising interest rates. Patrick MacDonald, co-head of debt capital markets at RBC Capital Markets, said in the past three months, investor orders for new issues were up to four times the amount of available product – demand that is well above the long-term average.
TOP BANKS FOR EQUITY UNDERWRITING
Amount
raised ($M)
No. of
issues
Rank
BMO Capital Markets
TD Securities
RBC Capital Markets
CIBC World Markets
Morgan Stanley
Goldman Sachs
952
828
595
581
457
457
16
12
7
8
1
1
5
TOP BANKS FOR DEBT UNDERWRITING
Amount
raised ($B)
No. of
issues
Rank
RBC Capital Markets
National Bank Financial
BMO Capital Markets
Scotiabank
TD Securities
19.3
18.8
14.4
13.1
13.1
75
55
64
51
59
TOP FIVE BANKS FOR M&A
Value of
deals ($B)
No. of
deals
Rank
J.P. Morgan
Morgan Stanley
TD Securities
Goldman Sachs
RBC Capital Markets
33.0
25.6
23.2
20.4
18.6
12
24
18
13
31
TOP LAW FIRMS FOR M&A
Value of
deals ($B)
No. of
deals
Rank
Torys
Linklaters
Sullivan & Cromwell
Osler Hoskin & Harcourt
Paul, Weiss
29.2
18.0
16.3
16.1
15.4
21
10
6
98
8
THE GLOBE AND MAIL, SOURCE: REFINITIV
TOP BANKS FOR EQUITY UNDERWRITING
Amount
raised ($M)
No. of
issues
Rank
BMO Capital Markets
TD Securities
RBC Capital Markets
CIBC World Markets
Morgan Stanley
Goldman Sachs
952
828
595
581
457
457
16
12
7
8
1
1
5
TOP BANKS FOR DEBT UNDERWRITING
Amount
raised ($B)
No. of
issues
Rank
RBC Capital Markets
National Bank Financial
BMO Capital Markets
Scotiabank
TD Securities
19.3
18.8
14.4
13.1
13.1
75
55
64
51
59
TOP FIVE BANKS FOR M&A
Value of
deals ($B)
No. of
deals
Rank
J.P. Morgan
Morgan Stanley
TD Securities
Goldman Sachs
RBC Capital Markets
33.0
25.6
23.2
20.4
18.6
12
24
18
13
31
TOP LAW FIRMS FOR M&A
Value of
deals ($B)
No. of
deals
Rank
Torys
Linklaters
Sullivan & Cromwell
Osler Hoskin & Harcourt
Paul, Weiss
29.2
18.0
16.3
16.1
15.4
21
10
6
98
8
THE GLOBE AND MAIL, SOURCE: REFINITIV
TOP BANKS FOR EQUITY UNDERWRITING
Rank
Amount raised ($ millions)
No. of issues
BMO Capital Markets
TD Securities
RBC Capital Markets
CIBC World Markets
Morgan Stanley
Goldman Sachs
952
828
595
581
457
457
16
12
7
8
1
1
5
TOP BANKS FOR DEBT UNDERWRITING
Amount raised ($US billions)
Rank
No. of issues
RBC Capital Markets
National Bank Financial
BMO Capital Markets
Scotiabank
TD Securities
19.3
18.8
14.4
13.1
13.1
75
55
64
51
59
TOP FIVE BANKS FOR M&A
Value of deals ($ billions)
No. of deals
Rank
J.P. Morgan
Morgan Stanley
TD Securities
Goldman Sachs
RBC Capital Markets
33.0
25.6
23.2
20.4
18.6
12
24
18
13
31
TOP LAW FIRMS FOR M&A
Value of deals ($ billions)
Rank
No. of deals
Torys
Linklaters
Sullivan & Cromwell
Osler Hoskin & Harcourt
Paul, Weiss
29.2
18.0
16.3
16.1
15.4
21
10
6
98
8
THE GLOBE AND MAIL, SOURCE: REFINITIV
“The market is open, don’t draw the wrong conclusion from the decline in new issues,” said Mr. MacDonald, an executive at the investment dealer arm of Royal Bank of Canada RY-T. RBC Capital Markets was the top debt underwriter through the first six months of the year, raising $19.3-billion in 75 transactions for corporate and government borrowers.
In the face of credit-market volatility this spring, Mr. MacDonald said many chief financial officers tapped bank lines or commercial paper programs for their borrowing needs. Looking ahead, he said companies are expected to adjust to a new interest-rate environment and return to issuing corporate bonds to pay for acquisitions and capital spending, and to refinance maturing debt.
In the past three months, M&A activity saw large corporate buyers snap up smaller rivals that got cheaper when equity markets declined, with Telus Corp. T-T acquiring LifeWorks Inc., and Gold Fields Ltd. bidding for Yamana Gold Inc. Takeover experts say the record-setting volume of M&A activity can only continue if the economic and geopolitical outlook stabilizes.
“Uncertainty is never good for M&A activity,” said John Emanoilidis, a partner in law firm Torys LLP. who focuses on takeovers. He said to date, deal-making activity has been “resilient,” in part because private equity funds and pension plans see opportunities to put capital to work.
J.P. Morgan was the top financial adviser on M&A transactions through the first six months of the year, with roles on 12 deals valued at $33-billion. Torys ranked first for law firms on M&A, working on 21 transactions worth $29.2-billion.
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Andrew Willis