Canadian equity financings grew slightly this year despite a combination of challenges stemming from high interest rates, an underperforming stock market and just one initial public offering on the Toronto Stock Exchange. What’s more, bankers are forecasting better conditions for ECM markets in 2024.

Canada-based banks dominated equity and equity-linked financings in their home market in 2023, with total issuances hitting $19.4 billion, a 0.4 per cent increase over 2022 levels. BMO Capital Markets was by far the most active bank in the space, raising $3.5 billion for clients, ahead of RBC Capital Markets at $2.2 billion and TD Securities at nearly $1.8 billion, according to data compiled by Bloomberg.

The financings come amid a dearth of IPOs in Canada, with Lithium Royalty Corp. the only company to go public, raising $150 million in March. Still, a high volume of secondary offerings — which make up the bulk of the ECM market in any given year — meant that the lack of debuts didn’t drag down overall totals.  

Canada’s equities benchmark, the S&P/TSX Composite Index, is up 7.5 per cent this year, underperforming the S&P 500 Index’s 24-per-cent gain. But with traders betting on interest rates to decline, the cost of capital falling and equity values on the rise, bankers see room for growth in 2024. 

“Now it’s a totally different ball game because you know that your cost of capital is not going up, it’s probably going down,” said Peter Miller, head of equity capital markets at BMO Capital Markets, adding that the bank sees activity picking up next year.

Citigroup, which led Lithium’s IPO, also is upbeat about the outlook for Canada’s ECM markets. “We feel that the market is positioned for a strong recovery in 2024,” said Grant Kernaghan, CEO of Citigroup’s global markets business in Canada. The Wall Street bank plans to take advantage of the expected increase in deals, he added. 

Canadian banks dominated the secondary market in 2023, which executives say indicates a healthy fundraising environment despite the fact that high interest rates pushed up overall capital costs.

“While IPOs are important, they are by no means the only barometer of the health of equity capital markets,” RBC’s global co-head of equity capital markets Nitin Babbar said in an interview.

More than 140 mining and materials companies tapped the markets, raising a total of $4.7 billion. The energy sector, meanwhile, had fewer deals but the largest amount of capital raised with total proceeds of $8.5 billion.

“The mining sector was the real star of the show,” said Daniel Nowlan, National Bank Financial Markets vice chair and managing director of equity capital markets. 

To be sure, tighter financing conditions complicated matters for companies in 2023, according to BMO’s Miller. “New issue discounts have been wider and over subscription levels have been lighter than we would normally like to see,” he said.