Hydro One, the giant transmission utility whose sale has sparked political controversy in Ontario, makes its debut on the Toronto Stock Exchange today in one of the largest initial public offerings in Canada in 15 years.
The Ontario government has said it plans to use the $1.66 billion generated by selling 13.6 per cent of its stake in the company to fund transit and infrastructure projects.
The sale of 81.1 million shares, priced at $20.50 each, is the first step in the government’s plan to gradually part ways with 60 per cent of the electrical utility behemoth.
Three more offerings, roughly the same size, are expected to follow, which are anticipated to generate a total of $9 billion.
Roughly $5 billion of that total would go towards paying down the utility’s debt, while the remainder would be used to fund the province’s 10-year, $130-billion transit and infrastructure plan.
Royal Bank of Canada (TSX:RY) and Bank of Nova Scotia (TSX:BNS), who are acting as underwriters in the utility’s public debut, also have an option to purchase an additional 8.15 million shares, which would bring proceeds from the IPO to a total of $1.83 billion.
Last wek, Ontario’s new financial accountability officer warned the sale of Hydro One would have a negative impact on the province’s budget balance.
Stephen LeClair’s first report to the legislature found the province would see an improvement in its budget in the first year after an initial sale of 15 per cent of shares in the utility.
But he says the budgetary impact could be positive or negative in subsequent years as more shares are sold, and will ultimately be negative once the Liberals sell the 60 per cent of Hydro One they plan to put on market.
LeClair estimates the total value of Hydro One at between $11-billion and $14.3 billion, and says based on that a 60 per cent sale would generate $6.8 billion to $8.9 billion, “a wider and somewhat lower range” than the government’s estimates. But the financial accountability officer says he can’t tell how the government came up with its valuations for Hydro One because the Liberals won’t tell him their methodology.
Without knowing how they made their calculations, LeClair says “it is not possible” for him to offer a definitive opinion on whether the partial sale will help the government eliminate a $10.3 billion deficit by 2017-18 as promised or not.
Hydro One turns over about $750 million a year to the province, which will be reduced as private owners take their share of the profits.
But Premier Kathleen Wynne says she needs to sell 60 per cent of the utility to raise money for public transit and infrastructure projects.