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TORONTO – Ontario Finance Minister Charles Sousa announced Thursday that the province’s budget deficit has shrunk a lot more than expected and that the Liberals take presctiption pace to return to a balanced budget by 2017-18, even as net debt is set to increase for the reason that timeframe.

Highlights from the 2016 Ontario budget

By Keith Leslie
Finance Minister Charles Sousa delivered the Ontario budget on Thursday. Here are a few from the highlights:

The budget deficit for fiscal year 2015-16 is anticipated in the future in at $5.7 billion, down in the last estimate of $7.5 billionThe deficit for 2016-17 is projected in the future in at $4.6 billion and become reduced to zero the following fiscal yearOntario’s net debt will hit $308 billion in 2016-17, the biggest of any sub-national jurisdiction in the world, costing $11.8 billion in interest payments, that will increase to $13.1 billion by 2018-19Income from the cap-and-trade intend to battle climate change is anticipated hitting $1.9 billion in 2017, up from last year’s projection of $1.3 billion
University and college tuition will be free for students from families with incomes of $50,000 or less, and most 1 / 2 of students from families with incomes up to $83,000 will get non-repayable grants that exceed the typical tuition – mostly students who survive their ownThere is a $3 increase in the cost of a carton of 200 cigarettes, effective at 12:01 a.m. Friday, and also the tobacco tax could keep rising at the rate of inflation each year within the next five years.The minimum price for a bottle of wine rises to $7.95, there is a number of increases in the LCBO’s mark-up on wine, starting with a two percentage point hike in June – about 10 cents a bottle – accompanied by another two percentage points in 2017 and 2018, with a one-point hike in 2019There may also be annual increases of about 10 cents within the tax on wine sold in private stores, increasing from 16.1 cents to 20.1 cents over four yearsThe $30 fee for Drive Clean vehicle emissions tests is going to be eliminated in 2017-18, although not the tests themselves, that will cost the province $60 million a yearHospitals can get their first funding rise in 5 years, up $345 million, plus $12 billion over Ten years in capital grants for around three dozen major hospital projectsSingle seniors earning as much as $19,300 each year is going to be eligible for cheaper drugs starting in August, compared with the prior threshold of $16,018. Couples by having an income of as much as $32,300 may also be eligible, where before only those earning $24,175 qualified. The costs will be offset by raising deductibles and co-payments for seniors above the new income thresholds. Annual deductibles will rise to $170 from $100 and co-payments will increase with a dollar to $7.11There will be $333 million over five years to revamp and improve autism servicesShingles vaccines for seniors, which cost $170, will be free.

The Canadian Press

Sousa asserted the deficit has become down in the $7.5 billion projected after this past year to $5.7 billion, as stronger economic growth in Ontario boosted government revenues. The budget forecasts that Ontario’s economy grew 2.5 percent in 2015, a significantly stronger level compared to 1.2 per cent forecast for the national economy.

Ontario’s deficit will also be helped by $1.1 billion gained from the sale of Hydro One, as well as growing cash injections in the authorities, that will hit $24.6-billion this year and rise to $26.6-billion by 2018.

But net debt goes up as the government continues to borrow to fund projects, including a massive $160 billion infrastructure project within the next 12 years. Net debt is set to increase to $326.8 billion in 2018-19, from $296.1 billion in 2015-16, even as the Liberals are set to possess a balanced budget by then.

The projection that Ontario’s debt will continue to rise and that debt-to-GDP will continue to hover near 40 per cent in the medium-term won’t thrill debt rating agencies. Standard & Poor’s downgraded the province’s debt last year, while others such as Moody’s Investors Service have placed an adverse outlook on provincial bonds.

Sousa dismissed the idea of further debt downgrades, however, saying a declining debt-to-GDP ratio could be welcomed.

“In my opinion credit agencies are going to look at this budget and understand that we’re achieving what we should said we’re going to do,” he said throughout a news conference.

The government has said it has a target of reducing net debt-to-GDP to the pre-recession degree of 27 per cent, although it gets no where near to that level in its projected forecast, with net debt-to-GDP hitting 38.5 in 2018-2019. The ratio is expected to peak at 39.6 per cent in 2015-16, remain level in 2016-17 and just begin to decline in 2017-18.

The government is projecting that total revenue in 2015-16 is going to be $2.2 billion greater than the 2015 budget had factored in, due to “higher asset optimization” and much more tax revenue as a result of a greater Ontario economy.

“I believe your budget is a huge part of the right direction,” said Douglas Porter, chief economist at BMO Capital Markets inside a phone interview. “The deficit targets were a substantial step away from the $10 billion deficits of past years.”

Patrick Brown, leader of Ontario’s Progressive Conservatives, said he cast doubt on the Liberals having the ability to go back to a balanced budget by its target date and warned that the budget was raising costs on Ontarians.

“The truth is taxes ‘re going up,” he explained.

Total government expenses within the upcoming fiscal year will be $0.2 billion higher than forecast within the 2015 budget. Program expenses is going to be $0.4 billion higher, but unchanged from the call produced in the 2015 Ontario Economic Outlook and Fiscal Review late last year. The increase in expenses is usually because of the Green Investment Fund, which includes a $325 million down payment aimed at reducing greenhouse gas emissions

The government is projecting a budget deficit of $4.3 billion in 2016-17, and balanced budgets in 2017-18 and 2018-19. The 2016-17 deficit projection is definitely an improvement of $0.5 billion when compared to forecast in the 2015 budget.

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The Liberal budget is obtaining a revenue boost from an Ontario economy that’s gaining steam. The province boasts one of the fastest growth rates in Canada, and Statistics Canada noted that 100,000 new jobs have been created there in the past Twelve months.

A weak loonie and low oil prices are helping manufacturers increase as exports become competitive again.



“They’re getting the aid of the subtle underlying improvement in the Ontario economy,” Porter said. “They’re also being helped by steady downdraft in low borrowing costs and debt service charges, which continue to flow to the main point here.”

“Spending restraint, unfortunately, was not just like advertised previously,” he added.

Real estate and construction continue being two biggest contributors to gross domestic product, though economists are increasingly worried about the red-hot Toronto housing industry, which is becoming a disproportionately large number of the economy.

Sousa noted that Ontario’s stronger economy is essential to balancing the budget.

“We have improved revenues from – the development in our economy and housing too,” he said.



And while debts are going up, the government said that it has reduced its risk to rate volatility by issuing long-term debt and locking in rates. The average rate of interest Ontario pays on its debt has declined from 10.9 per cent (on a weighted-average basis) to an expected 3.6 percent by March 31, 2015.

About $53 billion worth of bonds issued since the beginning of fiscal 2010-11 have been with terms longer than 30 years. The weighted-average term to maturity of long-term provincial debt issued has gone from 8.1 years in 2009-10, to 14 years in 2015-16.

Ontario is forecast to invest $11.2 billion servicing its debt in 2015-16, $210 million lower than forecast in the 2015 budget as a result of lower rates. But as debt rises, so will rate of interest payments, which are set to develop to $11.756 billion in 2016-17 and also to $12.453 billion in 2017-18.

With the oil industry weakened by a war over share of the market, global investment in alternative energy is setting new records, according to a brand new report that boasts: “While fossils crash, clean energy soars.”

The exception is Canada, where purchase of renewable energy plummeted 46 per cent in 2015 compared to 2014, to some paltry US$4 billion, even while Canadian governments were rushing to promote and subsidize clean energy.

In comparison, Canada’s oil and gas industry investment was forecast at $45 billion in 2015, down nearly 40 percent from $73 billion in 2014. In Alberta’s oilsands alone, 2015 capital investment was forecast to become lower by almost another, to $23 billion, when compared with $33 billion in 2014, based on the Canadian Association of Petroleum Producers.

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The 16-page Clean Energy Canada report, released Monday, said Canada is lagging on alternative energy because it has a patchwork of provincial renewable power policies that haven’t produced long-term certainty.

“The country has additionally experienced a lack of overarching federal policy support: pipelines trumped power lines as a national priority,” the group, affiliated with Burnaby, B.C.-based Simon Fraser University, writes in the report.

“But there is good news late in 2015 – Alberta and Saskatchewan both announced targets to improve their manufacture of renewable power, and the newly elected federal government has indicated that getting good clean energy around the grid is a priority.”

Prime Minister Justin Trudeau, provincial premiers and aboriginal leaders are meeting in Vancouver this week for discussions on the pan-Canadian framework to satisfy greenhouse gas reduction emissions commitments made in Paris in December included in a brand new global agreement.

The framework will develop actions already taken by provinces and territories, to ensure that Canada can meet – or exceed – its climate commitments, Trudeau said inside a Feb. 10 statement.

Clean Energy Canada, which fits to accelerate the transition to renewable energy, said an unprecedented US$367 billion was invested globally in renewable power in 2015, and the Paris commitments will boost its momentum.

“Turmoil in fossil fuel markets led many analysts to suggest clean energy investment would similarly stall out,” executive director Merran Smith said within the report.

“How could alternative energy possibly compete with cheap oil, gas and coal? But clean energy did compete, also it won. Once again, more income flowed into new renewable electricity than new power from fossil fuels.”

The group says clean energy costs are coming down as production and experience increase.

In the U.S., it says, the unsubsidized technology price of wind energy originates down 61 per cent since 2009, and utility-scale solar photovoltaic is down 82 per cent, thanks to improved efficiency minimizing costs of components like panels, inverters and turbines.

The top investors in renewable energy in 2015 were China (US$110.5 billion), the U.S. (US$56 billion) and Japan (US$43.6 billion). With only US$4 billion invested, Canada was in eight place.

Globally, the renewable energy sources of preference were solar (US$161 billion), wind (US$110 billion) and enormous hydro projects (US$42 billion).

“These global trends have to be on the radar of Canadian business and political leaders, simply because they paint an image of great opportunity,” Smith said in the report.

“There will continue to be markets for the fossil fuel helpful information on serious amounts of come, however their future is increasingly uncertain. It’s clear where the puck goes.”

ccattaneo@nationalpost.com

TORONTO/MONTREAL – Dream Office Investment Trust is working with TD Bank and CBRE to sell 1 / 2 of its stake in Toronto’s Scotia Plaza, Canada’s second tallest business building, based on two sources familiar with the matter.

The potential sale comes about 4 years after Dream Office REIT, then called Dundee REIT, acquired two-thirds from the Two million square-foot Scotia Plaza complex. H&R REIT bought the rest of the stake at the time. The $1.3-billion deal marked the greatest price ever paid for a Canadian business building.

Dream Office has become looking to sell half its stake, leaving Scotia Plaza potentially in the hands of three different owners with equal positions, based on the sources, who requested anonymity because the matter is not yet public.

Under a possible arrangement, Dream could seek to retain management control, one of the sources said, adding that it would depend around the outcome of the ultimate deal terms with the buyer.

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Strong interest is expected from foreign buyers and Canadian pension funds, the sources said.



The news may come as a significantly weaker Canadian dollar is attracting increasing attention from global investors seeking an alternative choice to tumultuous equity markets.

Scotia Plaza is incorporated in the midst of great renovations in recent months, though it is not clear if they’re associated with the potential sale.

As part of a recently announced strategic plan, Dream Office said hello looks to market non-core assets worth $1.2 billion over the next three years.

Dream Office Chief Executive Jane Gavan did not immediately respond to an e-mail requesting comment. TD declined comment, and CBRE didn’t immediately react to a request comment.

Dream Office shares lost 31 percent of the value last year, largely due to concerns about its large contact with the Alberta market, that has been hit by the oil price collapse.

This year Dream shares have gained nearly 14 percent, helped through the announcement about selling assets.

? Thomson Reuters 2016

HOUSTON – Prices for mansions in Houston’s swankiest neighbourhood have tumbled in lock step with crude prices. The Houston Opera has offered free season tickets to patrons who lost their jobs in the oil bust. An expensive restaurant offers cut-price dinners.

There’s somewhere OPEC can’t broker an oil deal: The fracking heartland of Texas

Saudi Arabia and Russia took the initial step to stem the slide in oil prices. There’s just one problem: If they’re successful – and that’s a big if – the wildcatters of Texas, Oklahoma and North Dakota are waiting to pounce.

Continue reading.

Twenty months in to the worst oil price crash since the 1980s, well-heeled residents from the world’s oil capital are among the hardest hit largely because tanking energy firm shares constitute a lot of gas and oil executives’ compensation.

In River Oaks, a neighbourhood of palatial mansions and lush gardens, the average sales cost of a home has tumbled to US$1.3 million from US$2 million in the middle of 2014 when oil began its more than 70 percent slide, according to data from the Houston Association of Realtors and Keller Williams. Median property prices in the area have previously fallen further in this downturn, which isn’t yet over, compared to 16 per cent stop by the previous oil slump in 2008 and 2009.

“When oil does well, River Oaks does well. When oil does bad River Oaks does bad,” said Paige Martin, a Keller Williams broker which specializes in the neighborhood. “Not everybody can afford a US$10 million house.”

City-wide data also show that while overall sales of single family homes fell 2 per cent in January, sales of these priced over US$500,000 tumbled 9 percent. The overall median house price was US$200,000, up 5 percent on the year, based on the realtors’ association.

While Houston’s economy is much more diversified now than in the 1980s once the city lost 13 percent of their jobs, it remains home to 5,000 energy-related firms and also the fortunes of gas and oil executives are tied more than ever before towards the energy market.

Since U.S. lawmakers passed legislation in 1992 encouraging “performance-based” pay, the proportion of investment in executive compensation has steadily increased, said David Bixby, head of the Houston office for Pearl Meyer compensation consultants.

“Now, you’re looking at 70 to 80 percent of CEO compensation in stock typically for oil and gas companies,” he explained. “They are going to be exposed to commodity price cycles.”

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ACROBATS As well as for SALE SIGN

For example, former oil executive, Kolja Rockov, whose extravagant wedding with dancers and acrobats was a local online sensation 3 years ago, briefly put his unfinished mansion available on the market for US$6.9 million, based on listings.

A Jan. 21, 2015 SEC filing showed he involuntarily sold 239,000 shares from the company’s tanking stock he’d used like a collateral for a loan. Rockov lost his job as Linn Energy LLC’s CFO in August.

Rockov said the house is actively being built, isn’t for sale, and the man left his job by mutual consent. A Nov. 5 SEC filing said he was “terminated without cause.”

Luxury car sales will also be slower in Houston than in other areas of the state and also the country.

“If you’re employed by an energy company, the thing is all this stress who are around you, it might nick your purchase confidence, even if you’re fairly high income,” Earl Hesterberg, chief executive of Houston-based Group 1 Automotive Inc, told Reuters.

He said over stock was most acute for top line BMW and Mercedes-Benz models in Texas and Oklahoma.

In a nod towards the downturn, Ouisie’s Table, a River Oaks institution, presenting its “Oil Barrel Bargain,” a three course dinner for the price of a barrel of oil, now around US$30.

To be sure, oil executives are not alone in feeling the pain. Many blue collar jobs in oilfield equipment production have disappeared. So have thousands of middle management jobs in oil exploration and production. A regular Uber customer is likely sooner or later to ride with a former energy industry professional.

“Its smart for that mortgage,” said Matthew Clemonds, who once did mapping for pipeline companies and today works for the ride-sharing company.

Job growth has slowed to some crawl from the breakneck pace of 100,000 a year during the oil boom; housing starts are down and subleasing of recent work place is booming, according to government data and NAI Partners, a genuine estate consultancy.

But to date, because of its diversity, the metropolitan economy has shown remarkable resilience, adding 20,000 jobs to just over 3 million last year.

For example, Houston hosts the Texas Clinic, the world’s largest cluster of hospitals, research facilities and affiliated universities, which says it employs 106,000.

In the energy sector, about US$50 billion being invested in new petrochemical plants to take benefit of cheap supplies is helping offset upstream job losses.

“This is actually the best oil price downturn we have ever had,” said Ted Jones, chief economist at Stewart Title Guaranty Company. “We still have more jobs than we’ve had in history.”

Bill Gilmer, a school of Houston economist, says so far it has paid off to tough it out through oil’s booms and busts and notes that ever since 1969 Houston has consistently ranked one of the fastest growing U.S. cities.

“The only issue is it could be a rollercoaster.”

? Thomson Reuters 2016

The Liberal government’s case for additional spending may get a lift if fourth quarter GDP comes in worse than expected on Tuesday.

Canada still lagging behind U.S. growth, and also at this time, we’re nowhere near to catching up

Divergence in United states economies shows little manifestation of narrowing. While the U.S. economy performed better than expected within the final quarter of 2015, Canada’s output likely slowed because of the ongoing drag from low oil prices and weak business investment.

Continue reading.

It appears that GDP rose by a paltry 0.3 per cent for 2015 as a whole, which would mark the weakest 12-month gain since the final quarter of 2009.

“The problem is if the economy slightly expanded or contracted within the final quarter of this past year,” said Derek Holt, an economist at Scotiabank, in a note. “Q4 GDP could increase pressure on Ottawa to add stimulus on March 22nd once the Federal budget lands.”

Despite the slowdown, Pm Justin Trudeau’s campaign promise to inject the Canadian economy with fiscal stimulus has received lots of criticism, in large part since the projected budget deficit has ballooned to $18.4 billion for next fiscal year (starting April 1).

The higher deficits outlined in Finance Minister Bill Morneau’s recent fiscal update don’t include many of the Liberal’s election promises, such as infrastructure spending, so the final projection is likely to come nearer to the $25 billion to $30 billion range.

Holt noted that much of the economy’s deterioration occurred at the end of the 3rd quarter, in September, so it entered Q4 at a weak starting point.

“That was the only real monthly contraction out of the past 6 months, however it automatically put the Canadian economy behind the eight ball into Q4,” he noted.

That’s why a lot of the focus is going to be on how Q4 ended, and December GDP figures (also out Tuesday) will give you some answers.

The finance department is more conservative than the others, projecting nominal GDP growth of only 0.4 per cent in 2016, when compared with an average of 2.4 per cent among private forecasters.

RBC comes in near the low end, estimating average annual growth in nominal GDP of just one per cent for 2015 and 2016. That would be the weakest two-year performance outside of the 2008 financial crisis.

The bank also noted the actual stimulus from new programs may only be roughly 0.5 per cent of GDP.

If Q4 growth measures zero as anticipated, that will mean the Canadian economy didn’t grow in three of the past four quarters.

While many don’t like the idea of massive deficits, the ones that support the Liberal plan include David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates.

“I would recommend reviving economic growth with fiscal policy at a time once the energy sector is detonating and there is heightened uncertainty,” he wrote in a note. “Perhaps understand that the problems (oops, I meant challenges) that Canada confronts will find little when it comes to remedy from monetary policy – the country hardly suffers from high interest rates or perhaps an uncompetitive exchange rate.”

National Bank Financial recommended the Liberal government fully implement its election spending platform, while also creating a $20 billion special trust to invest in targeted projects that will make the greatest chance of growth.

With Canada’s current debt-to-GDP ratio of 31 per cent, National Bank Financial’s chief economist and strategist, Stfane Marion, believes ?the federal government has wide latitude to make use of these fiscal tools – “a more potent policy instrument in the present circumstances – to aid growth and ease the reorientation from the Canadian economy toward non-resource sectors.”

On budget day, Canadians will become familiar with the extent that the us government shares this view.

Financial Post

jratner@nationalpost.com

Nearly 4 years after the auditor general found serious too little the way the federal government supports the aerospace sector, important questions remain unanswered as Ottawa weighs Bombardier’s request another US$1 billion in support.

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Bombardier has asked the us government to match the investment it has already caused by Quebec, arguing it requires the aid to enhance customer confidence and support the beleaguered CSeries jet program until it starts to generate positive cash flow in 2020.

The Liberals say they’re still evaluating the request, and keep that Bombardier will have to make a “strong business case” before it receives any assistance.

This is a refreshing stance, even though the government will undoubtedly support Bombardier in the end, said Peter Hadekel, author of Silent Partners: Taxpayers and the Bankrolling of Bombardier, an in-depth look at decades of government largesse.

“We haven’t heard that sort of language all that much previously,” said Hadekel, a columnist for that Montreal Gazette. “The business case has never really mattered much.”

This can be seen within the shortcomings discovered by Auditor General Michael Ferguson in his fall 2012 report. Based on Ferguson, the government didn’t adequately track the performance of their aerospace funding programs, including one dedicated specifically to supporting the CSeries. Even though several improvements have been made since 2012, the federal government still has not evaluated the potency of vast amounts of dollars in aerospace aid.

The Canadian aerospace industry continues to be receiving government assistance in a single form or any other since at least 1959, once the Cold War-era Defence Industry Productivity Program (DIPP) was created to encourage defence-related industries that may compete internationally.

DIPP was cancelled in 1995, even though it arguably succeeded in supporting Canada’s defence and aerospace companies, it had been failing when it found repayment.

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From 1985 onwards, DIPP beneficiaries received $2 billion in government funding, 55 per cent which was repayable. Of that, only $607 million or 30 percent of the total had been returned by mid-2012.

DIPP was replaced by Technology Partnerships Canada (TPC), which ran from 1996 to 2006. From the $3.1 billion disbursed under TPC, $767 million or 25 % have been repaid by mid-2012.

Although ten years has transpired since TPC was cancelled, the federal government still has not completed your final assessment of the program. As a result, its successor, the Strategic Defence and Aerospace Initiative (SADI), is passing up on information that could make it more effective, the auditor general said.

“We found that a final evaluation of TPC’s program effectiveness – including of the program’s longer-term technological, economic and societal outcomes – is not done,” despite the fact that Industry Canada said it would compete the evaluation by 2011, the report says.

“This means (Industry Canada) is not yet capable of integrate lessons learned from a final evaluation of TPC to potentially improve performance measurement for SADI.”

Industry Canada – renamed Innovation, Science and Economic Development Canada through the Liberals – is “progressing on and will be finalizing a lessons-learned report,” department spokeswoman St

The two Canadian investment banks that acted as financial advisers in Corus’ $2.65-billion purchase of Shaw Media have taken opposite approaches to how their research desks have covered the proposed transaction, that has been opposed by a minumum of one Corus minority investor.

Catalyst’s opposition to Corus-Shaw Media deal questioned by investors, analysts

The motives fuelling a minority shareholder’s make an effort to thwart Corus’s $2.65 billion purchase of Shaw Media were called into question Friday, as Catalyst Capital Group Inc. aired its concerns concerning the proposed sale on a business call with investors and analysts.

Continue reading.

Equity analysts at RBC Dominion Securities Inc., which acted for Corus Entertainment Inc., published research notes on Feb. 12 that offered a favourable opinion of the offer and analyzed the outlook for Corus and Shaw Media’s parent company, Shaw Communications Inc. In contrast, analysts at TD Securities Inc., which was hired by Shaw, happen to be prohibited from releasing any comments about the companies for an unspecified time period.

Both banks stand to generate millions in fees if the deal close.

The related-party transaction requires more than half of Corus’ minority investors to vote in favour of it either before or at a special meeting, which is held on March 9. It means shareholders can nonetheless be persuaded by research reports from brokerages and shareholder advisory research companies. 

Private equity firm Catalyst Capital Group Inc., which specializes in distressed debt situations, has raised questions about Corus’ lack of disclosure within the management information circular, that was published on Feb. 9, and the $2.65-billion price tag – a figure it contends is as much as $858 million too high. 

For the global research industry, which has been plagued by concerns over potential or perceived conflicts associated with investment banking clients, preserving autonomy is crucial.

To assist in managing actual or perceived conflicts of interest, RBC and TD say they follow strict internal policies that protect the independence of their research divisions. Certainly one of the tools that’s employed is a virtual and physical barrier that restricts and monitors the flow of knowledge between the research and investment banking sections. 

Both RBC and TD maintain internal policies that forbid their research analysts from talking with reporters. Official spokespeople offered limited explanations via email.

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“At the time of publication, neither Corus nor Shaw were restricted,” said Gillian McArdle, a spokeswoman at RBC. “Restricted” means that analysts are banned from publishing research. “We have comprehensive policies and procedures in place which govern the publication and distribution in our research.” She didn’t say why the businesses weren’t on the restricted list, or if so when the happy couple could be put back on this type of list.

In their notes, RBC’s analysts updated their estimates for companies and decreased their price target for Corus’ class B shares to $12 from $13 “following a period of research restriction.” They commented around the merits and pitfalls from the deal, calling it “an interim solution” in today’s slumping media environment.

“Our view of the Corus-Shaw Media transaction is relatively balanced,” one research note reads. They write that the combination “creates a stronger company with meaningful scale and a ‘right to win’ in a maturing broadcasting industry.” But they also explain some risks, too, including the lingering uncertainty around channel unbundling, a softer ad market and the “relatively high leverage” that Corus will need to pay for it.

But some are questioning RBC’s decision to publish their reports before the March 9 shareholder vote. Despite the fact that its research and investment banking arms are distinct, positive analysis could be seen as conflicted.

“It might happen to be prudent for RBC to haven’t issued any investment reports to prevent any appearance of a conflict of interest,” Laurence Booth, a company finance professor in the University of Toronto’s Rotman School of Management, said.

“When you start referring to compliance, the question isn’t whether it this is legal or illegal activity, but a question of whether a bank really wants to get involved with some kind of questionable activity that may play out poorly in the court of public opinion. That’s the job from the bank.”

In contrast, TD says it hasn’t published about the deal because it’s material to an investment banking client.

“TD Securities has a policy to limit analyst research on clients involved with a transaction deemed material to the clients,” said spokeswoman Alison Ford. When asked what is the foundation for this policy, she pointed to an Ontario Securities Commission policy that “provides general guidelines that registrants may wish to consider” for crafting policies and operations for safeguarding inside information about an issuer.

The OSC suggests that a registrant “should normally” move an issuer’s name to some restricted list when their relationship continues to be disclosed to the market, but the bank might be in possession of or could gain access to material knowledge over the course of a transaction.

The guidelines say that in this case, the dissemination of research materials concerning the issuer’s securities “ought to be restricted or stopped.” It says that a company “should normally” be moved from a restricted research list after any inside details are disclosed towards the market “following completing a distribution or perhaps a merger or acquisition.”

Ford declined to elaborate on why a study restriction have been initiated or when its institutional clients can get it to be lifted. “I can’t confirm the details,” she explained. “It might be inappropriate to publicly discuss our internal policy. Our internal policy is within place using the best interest of our clients in mind.”

Financial Post
cpellegrini@nationalpost.com

Trying to determine the reason why behind the dramatic stock price moves of Enbridge Inc. in the last couple of weeks is an exercise that will tax the sharpest of minds. And when some of those sharps minds are prepared to engage in conspiracy theories the problem becomes even more intriguing.

What all participants are attempting to understand are the dynamics, that saw the shares rise by $3.84 over the week by almost $6 in the week’s low. Those gains took place a period of much larger-than-normal trading volumes.

Those increases need to be considered alongside this news that Enbridge raised $2 billion of equity – that could rise to to $2.3 billion – through the sale of 49.14 million shares at $40.70, a cost set in a very healthy 5.7 per cent discount to the closing cost of the shares on the day the deal was priced.

The final factor – the one that has got the conspiracy theorists working overtime – may be the large recent buildup in the short interest in Enbridge. Short sellers participate in that activity since they’re convinced the shares will trade lower in the near future: If that view is correct it will allow them to profit from continued falls in the cost of the shares since the short sellers covers the short position at a lower price.

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We know that because the end of January, Enbridge’s stock price was off by a lot more than $5: it fell to $43.16 on Wednesday from $48.66; we also realize that in the first two weeks of February, the short position in Enbridge on the TSX jumped to 37.194 million shares from 31.444 million C an increase of 18.3 percent. (In those days Enbridge had the seventh-largest short position on the TSX.)



In Ny, where Enbridge also trades, the short position buildup was much lower. “This is a reliable utility stock,” noted one Canadian participant who was interested in the increase.

This participant submit two theories: The underwriters shorted the stock prior to the offering; or “brilliant speculators who sensed there was a 49 million shares issue coming at a knockdown price.”

While none of these theories can be proven, conversations along with other market participants, observe that the big short position and the have to cover might have had an impact within the share price surge. (We will have some indication once the TSX next reports Enbridge’s short position.)

Participants obtain that view since the size of the deal – an equity offering of $2 billion is five times the total amount that Enbridge raised in mid-2014, the last time it sold common shares – and the discount; large deals need a large discount, and Enbridge and the underwriters agreed to a proper concession. (On its 2014 equity financing that raised $460 million, the discount was 2.04 per cent.)

Put the 2 together and it might be presumed the selling price (and therefore the necessity to cover the short) would rise. And that’s what happened: on Thursday the shares improved by $2.38 to $45.54, a trend that continued Friday with another gain of $1.44. (On Thursday, volume around the TSX was almost six times normal.)

Other market participants possess a different take: They reason that the cost of oil has become a proxy for Enbridge.

John Whelen, Enbridge’s chief financial officer, said “the market perception has been around our capability to raise capital. This can be a very unusual market and investors have tended to pay attention to macro factors. By pre-funding our equity requirements for the next two years we have answered the market’s concern for what is definitely a attractive growth program.”

bcritchley@nationalpost.com

OTTAWA – Canada’s finance minister says he’s encouraged by “very positive feedback” from his Group of 20 peers to the Liberal government’s economic blueprint outlined during a two-day summit in Shanghai.

But while Bill Morneau said the gathering of industrialized nations – coming at a time of growing concerns within the stability from the global economy – “made good progress” to help to strengthen sustained growth, the actual text of the group’s communiqu offered few details of the agreement.

The G20 finance and central bank chiefs, however, maintained they were “committed to further enhancing the structural reform agenda” first agreed to in 2014 – an objective that has been complicated by the global collapse in oil prices since mid-2015 and new concerns that the possible exit by Britain in the European Union provides another shock towards the global economy.

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Still, inside a statement released around the weekend, Morneau said the G20 ministers “made good progress on advancing policies to bolster the worldwide economy.”

“I received very positive feedback on Canada’s new path for long-term growth, and recognition that when the center class thrives, we all thrive,” he said.

He added the government’s March 22 budget – the very first because the Liberals, led by Justin Trudeau, came to power – “will demonstrate Canada’s commitment to making smart and necessary investments to be able to grow the economy and make a real difference for that middle-class and the most vulnerable.”

That policy path includes tax breaks for middle-class families, increases towards the Canada Child Benefit for all those with low-incomes and spending on infrastructure projects.

To do that, the Liberals ran on the campaign to return Ottawa to some deficit – a shortfall that is now expected to be $18.4 billion within the coming fiscal year, up from the promised $10 billion deficit.



Many economists, however, believe the government will need more firepower to prevent Canada sinking into another recession. They suspect that spending level could rise up to $30 billion or more in only the very first year of the government’s four-year mandate.

Meanwhile, previous structural reform commitments through the G20 were designed to add two percent to global growth by 2018. So far, the International Monetary Fund has predicted that growth is only going to reach 0.8 per cent in that timeframe.

“The worldwide recovery continues, however it remains uneven and falls short in our ambition for strong, sustainable and balanced growth,” according to the communiqu, released at the conclusion of G20 talks on Saturday.

“Monetary policies will continue to aid economic activity and ensure price stability,” the group said, but added that “monetary policy alone cannot result in balanced growth.”

Indeed, the financial institution of Canada – led by governor Stephen Poloz,  who also attended the G20 summit – has cut its key lending rate twice previously year, both times by 25 basis points, first in January 2015 and again the next July.

The central bank rate is now at 0.5 per cent and expected to remain there until policymakers can better gauge the impact of the federal government’s economic plan.

During the G20 meeting, IMF md Christine Lagarde emphasized the need for structure reform has become “even more pressing given the disappointing state from the global recovery.”

“Our research finds that for that more advanced economies, reforms that foster technology and innovation may have the best pay-off,” Lagarde said in an address in Shanghai. “For emerging market economies, strengthening property rights and capital markets might be more relevant.”

Despite these goals, the G20 didn’t support calls for a co-ordinated global spending package that could help limit the chance of global financial trouble, similar to that observed in 2008-09.

“(But) we’ll make use of all policy tools – monetary, fiscal and structural – to bolster growth, boost investment and ensure stability in markets,” the G20 communiqu said.

In an argument, the Finance Department said Morneau “encouraged his G20 counterparts to apply long-term growth strategies.”

In Shanghai, also, he met with Canadian business leaders “to discuss making more global opportunities for Canadian businesses to develop and thrive on the international stage,” the minister’s office said.

gisfeld@nationalpost.com

Twitter.com/gisfeld

HALIFAX — An airline passenger advocate says Canada need to look at establishing seat-size standards for commercial airlines.

Gabor Lukacs says an attempt by American Sen. Charles Schumer to want the U.S. government to determine seat-size standards is one thing that needs to be done in Canada.

Lukacs said such standards are needed on Canadian flights, as cramming too many people onto an airplane poses safety risks.

“It’s an enormous safety issue,” said Lukacs from Halifax on Sunday. “If you cram too many passengers in too small of the space, then some people will end up the inability to evacuate the plane in the same amount of time (during an emergency).”

They’re like sardines.

Lukacs said overcrowding planes also infringes on passenger comfort, especially on lengthy flights.

“It can be very problematic,” he said. “There’s even the issue of air rage. Because seats are so close, you’ve individuals who use such things as stoppers from allowing the seat in-front in it to recline. It makes tension between two strangers… or even a small amount of tension can spark a fist fight.”

Lukacs said creating standards that apply to all commercial airlines will bring Canada consistent with other jurisdictions, like the European Union.

“When it comes to air passenger rights, we’re greatly behind the rest of the world,” said Lukacs.

Transport Canada did not immediately return a request for comment Sunday.

The U.S. also does not have federal limits how close an airline’s row of seats could be or how wide an airline’s seat should be.

Schumer, a New York Democrat, says he will add an amendment to some bill that’s pending before Congress that would require American Federal Aviation Administration to set the seat-size guidelines. A vote is expected in March.

Schumer said airlines have been slowly reducing legroom and seat width.

“They’re like sardines,” Schumer said of airplane passengers. “It’s not a secret that airlines are looking for different options to cut costs, however they shouldn’t be cutting inches of legroom and seat width along the way … It’s here we are at the FAA to step-up and prevent this deep-seated problem from continuing.”

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Schumer said seat pitch, the length from a point on an airline seat and the same just right the seat in front of it, has dropped from 35 inches within the 1970s to some current average of closer to 31 inches, and seat width has gone from 18.5 inches to about 16.5 inches.

He argues the requirement is required to stop airlines from shrinking those numbers even more.

An FAA spokesman said agency officials “anticipate reviewing” Schumer’s proposal.

Airlines for America, a business trade group representing a range of U.S. carriers, said it believes the government’s role is to determine a seat size that is safe, but opposes the proposed regulation.

“We feel the federal government shouldn’t regulate, but instead market forces, which reflect consumer decisions and competition must decide what’s offered,” spokeswoman Jean Medina said. “As with any commercial product or service, customers vote every day using their wallet.”

— With files from The Associated Press

 

Rumblings from Enbridge’s $2 billion equity financing – an offer that’s expected to be upsized by 15 per cent which closes Tuesday – continue.

One rumbling concerns the way in which the stock was allocated. With a cast of 17 firms, four more dealers were involved this time around compared with the company’s previous equity offering, a $460 million issue in mid-2014.

But there was no room for any selling group firms. Those firms, which don’t carry any of the risk that is assumed by the underwriting group, put orders in with respect to their customers (normally retail) with the expectation of having a so-called fill.

On this financing – announced at 4:42 p.m. last Wednesday C potential selling group firms received a phrase sheet at approximately 4:51 p.m. Three and a half hours later – a remarkably short period of time to sell such a great deal of stock – exactly the same firms received an email from syndication “that the financing is already closed and there is no selling group allocation.”

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Enbridge set to boost $2 billion of equity which will meet its needs until the end of 2017Explanations, most of which are fanciful, behind Enbridge’s share price gains

Instead all the available stock was placed through the firms within the syndicate: allocations ranged from 16 percent for RBC and Credit Suisse to 0.5 percent for each of First Energy, Macquarie Capital Markets and Peters & Co.

“You put a purchase set for shares with respect to a customer and you are told that you get nothing. It’s deflating,” noted one broker. “Get exactly the same result several times consecutively and you start losing clients,” he added noting that while not having a selling group may go in the short term, it isn’t constructive from the long-term perspective.



The argument runs this way: over a cycle issuers need both large and small dealers to satisfy their needs. But to make sure that the little dealers remain once the big dealers decide they won’t be covering that segment from the market, they have to get area of the good deals. (A couple of years back, in another blow, the federal government of Ontario did away with selling group participation because of its bond offerings.)

And Enbridge was a good deal: the orders piled in (a lot more than 200 institutions participated); demand was strong as has been the after market performance: the shares are up by more that $6 from issue price. It might happen to be easy money for that smaller firms – though because it’s a classic zero-sum game, their revenue would have come in the cost of the underwriters.

This broker contrasted the Enbridge experience with what went down with the privatization of Hydro One in which the seller (Ontario government) insisted on broad retail participation – a goal which was partly achieved by including a group of selling group members. That edict was easy to implement because the offering was marketed – and not bought, where self interest necessitates shares be sold as quickly as possible.

Who gets what inside a deal is really a multi-part process. The overall allocation between firms – meaning the underwriting liability each dealer agrees to – is decided by the issuer with input from the lead managers or book-runners. Enbridge’s policy is: “We take care of people who take care of us.”

With input from the issuer, the split between institutional and retail will be determined, a determination that may change once all the orders have been received. Within an over-subscribed deal, the final allocation, which institutions get stock could be tense.

bcritchley@nationalpost.com

 

 

 

OTTAWA – Divergence in United states economies shows little manifestation of narrowing.  

While the U.S. economy performed much better than expected in the final quarter of 2015, Canada’s output likely slowed due to the ongoing drag from low oil prices and weak business investment.

On Friday, revised U.S. data showed that country still performed much better than expected in the final quarter of 2015, managing revised annualized growth of one percent, up from the previous estimate of 0.7 per cent, and pointing to an improving pace for gross domestic product in the first quarter of the year.

Revisions to U.S. GDP through the Commerce Department now put overall growth in 2015 at 2.4 percent.

That is a hard act to follow for Canada, in which the economy managed only 0.3 per cent growth in November, coming after a flat reading in October and a 0.5 percent decline in September.

December and fourth-quarter GDP data will be released on Tuesday, using the consensus of annualized quarterly growth being about 0.3 per cent, “so, hardly any growth,” said Douglas Porter, chief economist at BMO Capital Markets.

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As for Canada’s overall 2015 tally, forecasters aren’t anticipating more than one percent growth, and just slightly better output its this season – even with federal government stimulus spending and tax cuts for middle-class families.

Most estimates put Canadian GDP growth at 0.5 per cent within the first quarter of 2016.

“The story there is that we believe we will see another big stop by business capital spending. This is where the weakness is originating from,” said BMO’s Porter.

Meanwhile, the U.S. economy has become forecast to grow by as much as 2.5 per cent within the first quarter of 2016.

“(But) we remain firm in our opinion that the U.S. economy continues to grow, with reduced slack continuing to improve inflationary pressures and providing sufficient evidence to Federal Reserve officials to tighten monetary policy twice more later this season,” said Fotios Raptis, senior economist at TD Economics.

The recent financial market turmoil “poses a danger of a broader slowdown in global economic growth than some of the backward-looking economic indicators are dictating,” Raptis said.

In December of this past year, the Fed raised its key lending level a quarter point to between 0.25 and 0.5 percent, after sitting tight since 2008. The Bank of Canada moved well before that – in January 2015 – however in the opposite direction, cutting its trendsetting interest rate 0.75 per cent in one per cent, where it absolutely was since September 2010.

The Bank of Canada’s next rate decision occurs March 9.

But most analysts don’t anticipate any change at that meeting, given the federal government’s 2016-17 budget won’t be tabled until March 22.

However, the bank’s April 16 decision, that will accompany its forward-looking quarterly Monetary Policy Report, often see alterations in the outlook by policymakers around the economy and the possible impact of Ottawa’s spending plans.

Financial Post

gisfeld@natinalpost.com

Twitter.com/gisfeld