Bay Street raises highest quantity in a decade as debt, fairness markets diverge

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It was a story of two very completely different tales for Canadian capital markets in 2024, with exercise within the debt markets reaching file highs amidst a continued decline within the fairness house.

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Overall, Canada’s monetary sector raised about $552.8 billion by means of 946 offers in 2024, the best quantity raised previously decade and up 19.5 per cent from $462.4 billion in 2023, in response to Financial Post Data.

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The complete quantity of debt raised by company corporations final 12 months was $280.2 billion, up 11.9 per cent from 2023, whereas authorities entities raised $254.2 billion, up 32.2 per cent.

In distinction, capital raised by corporations by means of promoting shares declined 6.8 per cent to $17.8 billion in 2024. It was the third consecutive yearly decline and the bottom quantity raised in nearly a quarter-century.

The stark distinction between the 2 markets is an indication of the financial backdrop, mentioned Rosalind Hunter, co-chair of Capital Markets at Osler, Hoskin & Harcourt LLP, which participated in 28 offers and topped FP Data’s listing of legislation corporations offering counsel to debt and fairness issuers.

“When the economic system is just not performing effectively, and there are these uncertainties and financial indicators that aren’t enhancing, it impacts the worth of the inventory value of issuers … which makes them much less more likely to wish to problem shares at a depressed inventory value,” she mentioned. “It’s not a time after they wish to have the dilutive impact of issuing extra shares.”

Hunter mentioned numerous corporations that “rushed” into the market throughout the pandemic didn’t carry out in addition to anticipated after their preliminary public providing (IPO), which has “raised the bar” for traders by way of what they’re on the lookout for in the present day.

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“They must be worthwhile or close by,” she mentioned. “That actually limits the variety of Canadian corporations for whom IPO is an choice.”

As a end result, the efficiency on the fairness facet of issues wasn’t a shock, in response to Nitin Babbar, international co-head of Equity Capital Markets at Royal Bank of Canada, which participated within the highest variety of offers and helped elevate the biggest quantity of capital — $79.2 billion — in 2024, incomes it a market share of 14.3 per cent of all capital raised.

TD Securities Inc. was second with a market share of 13.3 per cent, elevating about $73 billion by means of 253 offers, whereas National Bank Financial was third, elevating $61.56 billion by means of 199 offers, giving it a market share of 11.1 per cent. CIBC World Markets Inc. and BMO Capital Markets raised $52.7 billion and $47.8 billion, respectively, giving them respective market shares of 9.5 per cent and eight.7 per cent.

Babbar mentioned debt markets are “considerably bigger” than fairness markets and there’s at all times a better tempo of issuance, however the fairness house did get off to a little bit of a “sloppy” begin within the fourth quarter in 2023 when inflation and excessive rates of interest compelled the market to “pause considerably” and anticipate circumstances to enhance.

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“Debt markets reacted pretty shortly,” he mentioned. “But fairness markets had been hanging on each Fed dialogue and each Bank of Canada dialogue. What we had was a little bit of a lag from expectations in December 2023 as to what the speed cycle would appear like to what truly occurred. Really, what we noticed was a paused stage of exercise that was utterly provide pushed, not demand pushed.”

Babbar mentioned each deal within the fairness house his financial institution checked out was an excellent deal and was “very well-subscribed, with plenty of investor curiosity.” But what they didn’t see was numerous potential offers.

“It’s simply the volumes,” he mentioned. “It simply implies that corporations’ stability sheets are in ok form, have sufficient entry to credit score, so that they didn’t must press the fairness button, and that simply offers them extra flexibility.”

The largest deal on the fairness facet got here in February when Vancouver-based First Quantum Minerals Ltd. bought new shares to boost a complete of $1.5 billion because it seemed to spice up its stability sheet after its largest mine was shut down by the Panamanian authorities.

Vaughan, Ont.-based GFL Environmental Inc. was second on the listing, as a secondary providing raised about $982 million in March. The third-biggest deal was a $614.3-million secondary providing in August associated to Restaurant Brands International Inc., which owns manufacturers corresponding to Tim Hortons and Burger King.

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The solely main IPO final 12 months happened in November when Montreal-based trend retail agency Groupe Dynamite Inc. raised $313.6 million. In complete, there have been 16 IPOs value $385.3 million, in response to FP Data.

The different finish of the spectrum — the debt market — posted a number of constructive data throughout the 12 months.

In June, Coastal GasLink LP, a pipeline challenge in Western Canada, refinanced $7.15-billion of its current development credit score facility by means of a Canadian personal bond providing that was deemed the nation’s largest-ever company bond deal.

That was adopted by Enbridge Inc. providing three tranches of medium-term notes value $1.8 billion in August. Pembina Pipeline Corp. and Telus Corp. raised an analogous quantity in January and February, respectively, whereas Bell Canada raised $1.5 billion in May.

“There was a big quantity of debt issuance. It was a file 12 months by our rely,” Rob Brown, co-head of Canadian Debt Capital Markets at RBC, mentioned. “It was actually effectively forward of final 12 months and forward of the pandemic-fuelled surge that we noticed in 2021.”

Debt markets in 5 of the 12 months final 12 months had file outcomes, he mentioned. A lot of that needed to do with a “beneficial funding price atmosphere, with yields trending decrease from April till the top of the 12 months.”

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Credit spreads had been additionally “multi-year tight,” Brown mentioned, which means there was a lovely price of funding for issuers.

In addition, there was a file variety of first-time company debtors and it was essentially the most lively 12 months for the high-yield market in Canada, Abeed Ramji, head of the Canadian Debt Capital Markets at Toronto-Dominion Securities, mentioned.

He attributes the boldness out there to the rate of interest cuts by the Bank of Canada.

“Typically, corporations will have a look at what’s maturing this 12 months. But in 2024, corporations began to consider their 2025 funding wants by 2026, 2027, and attempt to pre-fund a few of these wants,” he mentioned. “They acquired to be much more opportunistic on account of that.”

Ramji mentioned TD was advising debtors to “front-load” their borrowing wants for the 12 months since there was a way of uncertainty as a result of United States election in November. After the election, he mentioned the market turned “much more conducive” and exercise has continued previously couple of months, which is one more reason for the file volumes.

There had been additionally extra international corporations trying to elevate capital in Canada final 12 months, he mentioned. For instance, McDonald’s Corp. bought $1-billion value of Canadian greenback bonds in a 12 months for the primary time since 2017.

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“To see a world powerhouse like McDonald’s trying on the Canadian market, valuing the depth of the market, valuing the investor diversification and valuing the truth that we’re in a position to obtain fairly good aggressive price of funding was a spotlight for me,” Ramji mentioned.

“There’s going to be much more give attention to these names subsequent 12 months. Maybe we are able to see an uptick of worldwide issuers trying to entry our market.”

There was additionally a rise in quantity and variety within the high-yield debt market in 2024, which was “form of new,” Hunter mentioned. High-yield money owed are securities which have a better danger of default, however supply larger yields than bonds which are rated positively.

“There’s at all times been a fairly robust U.S. high-yield debt market, however in Canada, 2024 was one of many strongest years on file for Canadian high-yield debt, with many new entrants to the market, plus quite a few choices by current issuers,” she mentioned.

Hunter expects the development to proceed in 2025.

Interest charges and inflation are on the decline and there’s ongoing momentum in dealmaking, so analysts anticipate 2025 to be one other good 12 months for elevating capital within the debt market.

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Hunter mentioned she can also be “cautiously optimistic” in regards to the dealmaking prospects within the equities house.

In an analogous vein, TD’s Ramji expects circumstances in 2025 to be beneficial for the debt market. He mentioned credit score spreads ought to be “fairly rangebound” for the higher a part of the 12 months and doesn’t anticipate them to “blow out.”

As a end result, the demand for bonds will stay secure and volumes shall be elevated, even when they don’t hit the identical file ranges as 2024.

However, all these themes might be affected by incoming U.S. president Donald Trump, who has reiterated his plans to put a 25 per cent tariff on all Canadian exports. There’s additionally elevated uncertainty linked to Prime Minister Justin Trudeau‘s upcoming resignation and the potential for a brand new Canadian authorities taking cost this 12 months.

Together, these elements might dampen the temper for a 12 months that was purported to thrive on low rates of interest, capital markets specialists say.

“I believe we’re fairly optimistic … though all bets are off if Trump does enact a few of the crippling tariffs,” RBC’s Brown mentioned. “That might be clearly fairly damaging to the Canadian economic system that’s already affected by pretty poor productiveness metrics.

• Email: nkarim@postmedia.com

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