Canada IPO Bankers Hail ‘Revolutionary’ New Fundraising Rule
(Bloomberg) — Investment bankers are applauding steps taken by Canada’s securities regulators to make it easier to do initial public offerings, and to raise money afterwards.
At a time when Canadian stock offerings are mired in a multi-year decline, the country’s regional securities regulators have introduced new rules that investment bankers and securities lawyers say could spur IPOs in an otherwise anemic market.
The rules allow firms considering an IPO to file prospectuses with only two years of audited financial statements rather than three, and also to use those same prospectuses to raise more capital for an additional 12 months.
“That’s actually pretty revolutionary,” said Dan Nowlan, vice-chairman and managing director, equity capital markets, corporate and investment banking at National Bank Financial Markets, of the ability to raise more money from the same prospectus. In theory, all a company would need to do to raise additional money is issue a press release.
The rule change would allow firms to raise the smaller amount of C$100 million ($72 million) or 20% of the issuer’s market value for 12 months after an IPO, as long as the shares were trading above the offering price. Nowlan said this could provide an incentive to firms to list.
The Canadian Securities Administrators announced the changes last week via blanket orders to be implemented separately through each of its regional members.
The new fundraising rules wouldn’t help issuers whose shares have struggled following their IPO. Clothing retailer Groupe Dynamite Inc., for instance, went public in November 2024 and marked the first corporate IPO on the Toronto Stock Exchange in nearly two years, but its shares have since fallen nearly 34%.
The change in accounting rules — requiring two years of audited financial statement rather than three — is also “very helpful,” Nowlan said. “The biggest thing that holds issuers back from doing a transaction when they want to hit the market is accounting. The auditors — that is normally a bottleneck,” he said.
CSA chair Stan Magidson said the change to require only two years of audited financial statements was brought in response to feedback from stakeholders. “Canada is a great place to do business, and the CSA wants to support companies going public, investment opportunities and the vitality of our capital markets,” he said in an email.
The changes are being implemented amid a “general decline in activity in Canada’s capital markets” but represent “one step” toward revitalizing activity, Goodmans LLP partners Brad Ross, William Gorman and associate Duncan Lurie wrote in a report released Wednesday. The firm called for “more concrete steps” to help lift activity in Canada.
Indeed, investment industry regulators have also proposed new short selling rules with the support of the country’s stock exchanges that may reverse the long decline in ECM activity.
Steps to address the stagnant market are being applauded across Toronto’s Financial District.
“It is great to see the provincial securities regulators coming together in this way to address some of the hurdles that exist to companies looking to raise capital in Canada,” said Grant Kernaghan, chief executive officer and chairman of Citigroup Global Markets Canada. He expects the new rules would have a positive effect in the long term.
“In the short term, I believe that the ever-changing tariff regime will continue to put a damper on the market and volumes will remain low until there is a period of continued stability,” Kernaghan said.
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