Two themes emerge in this year’s mid-year report: Canadian investors’ appetite for yield products and complexities associated with non-domestic issuers.
We have commented on Canadian investors’ appetite for yield products in past mid-year capital markets reports. This year it’s the same, only more so. Through April 30 this year, $10.76 billion in equity capital has been raised on the TSX (down from $17.25 billion in the comparable period in 2012); $2.0 billion of the 2013 funds were raised in the real estate (REIT) sector, by far the largest of the eight sectors the TSX ranks, excepting financial institutions. The four new international listings on the TSX in 2013 are cross-border REITs. High-yield bonds are an increasingly prominent part of the Canadian capital markets.
Our report includes a review of the 20-year history of the Canadian REIT industry – the quintessential yield product – which began with RealFund in 1993. We also assess the greater role the bond market is playing in Canadian infrastructure funding, and provide a review of the growing Canadian high-yield debt market, including how it differs from the U.S. market.
Advisers continue to develop structures to effectively deliver yield products to meet demand. Issues arise in the design of efficient cross-border distribution of cash flows to investors. We outline innovative approaches that have led to growth in cross-border income fund IPOs in Canada. Many recent CBIFs have been in the real estate sector, marrying the Canadian yield appetite to the increasing strength of the U.S. real estate market. We also note another development relating to non-domestic issuers: the marked decline of Chinese companies listed in the United States.
Our report also addresses issues around two of the pillars of the Canadian equity markets: recent oil and gas capital activity and an analysis of why no Canadian bank has issued non-common share equity in 2013.
We look forward to the rest of the year. Several IPOs are in the pipeline, so it will be interesting to see if they make it to market and whether we see any resurgence outside of real estate.