Hydro One shares on sale in biggest TSX IPO since 2000

Ontario's Liberal government kicked off the biggest privatization of a Canadian Crown corporation in 20 years on Thursday, when shares in Hydro One started trading on the Toronto Stock Exchange.

The move comes despite widespread opposition, with the government's own polling suggesting most Ontarians are against the plan.

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Hydro One controls Ontario's high-voltage transmission system and distributes electricity directly to 1.4 million homes and small businesses, about 25 per cent of the province's hydro customers, mainly in rural areas.

By any measure, this is a big deal.

"It is in fact the largest transaction in [Ontario's] history," Finance Minister Charles Sousa told CBC News on Wednesday.

Shares traded at $21.46 at 11:27 a.m. Thursday in Toronto, compared with an IPO price of $20.50.

The last time an initial public offering (IPO) of this magnitude hit a Canadian stock market was in 2000, when Sun Life Financial began trading publicly, raising nearly $1.8 billion.

The last time any Canadian government — federal or provincial — raised this much money from selling off a Crown corporation was in 1995, when Ottawa's IPO for CN Rail raised $2.26 billion.

Sousa said the initial public offering is already "oversubscribed," meaning investors have placed advance orders for more shares than are available.

Transmission lines for transit

The province is floating a first tranche of 81.1 million shares in Hydro One at the price of $20.50, potentially bringing in $1.66 billion.

That's just the first phase of Ontario Premier Kathleen Wynne's plan to privatize most of Hydro One. Her government is prepared to sell off up to 60 per cent of the utility, aiming to fetch some $9 billion.

Some $5 billion of the final share sales are earmarked for Hydro One's debt; the rest, says Wynne, will go toward Ontario's $130-billion commitment to building new infrastructure, such as transit.

"That historic investment in infrastructure is not possible unless we have the resources," said Wynne on Friday, in her last news conference before leaving the country on a 15-day trade mission. "Part of that is leveraging the assets that we own, including Hydro One."

Effectively, Ontario is selling off its transmission lines to help pay some of the cost of transit lines.

By not putting all of its shares up for sale at once, Ontario is aiming to avoid the shortcomings of previous federal privatizations — such as Air Canada and CN Rail — and cash in on what the government expects will be growth in Hydro One's share price over the coming years.

"We've done this in a very careful approach," said Sousa.  

But both opposition parties are not impressed.

'No justification'

"There is no justification for it," NDP Leader Andrea Horwath told CBC News on Wednesday. "There are many, many ways to pay for that infrastructure, and the Liberals have taken the worst possible decision," she said.

"We're losing control over one of the most important public assets here in the province," said Horwath. "Why is this happening?"

"It's a one-time payout with long-term negative consequences," said PC Leader Patrick Brown in question period on Tuesday. "Everyone in Ontario will pay for this bad deal."

The opposition parties' arguments are not changing the Wynne government's direction. Nor is the recent report by Ontario's Financial Accountability Officer Stephen LeClair, which says the sale will in the long run leave the province worse off than if Hydro One stayed in public hands.

The Liberals did not campaign in the 2014 election on a promise to sell off Hydro One. Their platform instead offered a vague plan to study how to "maximize and unlock value" from Crown corporations. "That doesn't necessarily mean we will sell them," said Sousa in his May 2014 budget speech.

Ed Clark's about-face

As recently as last November, even the Liberals' hand-picked privatization czar, Ed Clark, was advising them against wholesale privatization of Hydro One. "We believe Hydro One transmission should remain in public ownership," said the interim report from the Advisory Council on Government Assets, led by Clark. 

Instead, that report advocated the government separate Hydro One's local electricity distribution business from its transmission business, and "dilute" its ownership of the former.

Five months later, Clark and his fellow advisers changed their tune. "We have evolved our thinking significantly," they wrote. "The province should sell, over time, a majority interest in Hydro One through share sales to the public."

The Wynne government announced the plan to sell off the majority of Hydro One at the same time it announced that supermarkets will soon be allowed to sell beer. 

In the recent behind-the-scenes documentary, Premier: The Unscripted Kathleen Wynne, Liberal strategists admitted they wanted voters to focus on beer, and not on Hydro One. 

That strategy was fairly clear on the day of the announcement, back in April, as this backdrop reveals: