The Ontario provincial government has announced a plan to sell 60% of Hydro One and list shares on the TSX. This is great news for investors, particularly those from Ontario as the sale will add a new blue chip company to many portfolios. The province will sell a 15% stake in Hydro One through an IPO, which will be one of the largest IPOs in Canadian history. This initial sale will give markets an idea of valuation in anticipation of further sales of the government’s stake later on. The government has also committed to making 25 to 30 percent of the IPO available to individual investors (call your broker now :). And similar to the ownership rules for large banks and insurance companies, individual shareholders will not be able to own more than 10% of the company, ensuring Hydro One remains publicly owned and quoted on the TSX.
Investors should also pay close attention to other Hydro One securities that may become available over time such as preferred shares and other types of bonds as the company rationalizes its balance sheet going forward. I wonder how this will impact the price of Hydro One bonds and how the province will deal with other debt re-organizations it has done in the past through various public agencies.
Another area future shareholders should be examining is how the strategy of Hydro One will change following the IPO. Take Emera as a comparison. When it was privatized as a holding company for Nova Scotia Power, its strategy was to use NSP as a base to expand into other jurisdictions. I think Emera’s development was largely successful, and I hope Hydro One also takes steps to diversify itself. The problem Hydro One might face is meddling from the province. In Nova Scotia, it has been a delicate balancing act for provincial electricity regulators to protect consumers while also fostering a healthy business environment (which could attract further investment). Ontario should study these experiences as it embarks on a similar process. I hope Ontario will encourage Hydro One to grow and diversify as it would benefit investors and also add a growing regional champion to the Toronto business community.
Concurrently, as Powerstream is now owned by a number of municipalities (and is taking more steps to diversify), should rate payers also wonder whether it should Powerstream list a portion of its shares on the TSX? This would give Powerstream a clearer market focus, and give it better access to capital markets.
