Initial public offerings (IPOs) on Canadian equity markets all but stopped in the final three months of 2006, according to the latest PricewaterhouseCoopers (PWC) IPO survey.

The steep decline in the value of new offerings in the last quarter dragged down the results for the full year and the outlook for 2007 looks very dim.

The annual survey of Canadian IPO activity on the TSX and TSX Venture exchange reveals 116 new issues worth $5.8 billion in 2006, off from the 119 new issues worth nearly $7 billion in 2005. There were 54 new IPOs with a value of $5.4 billion on the TSX in 2006 versus 74 offerings worth $6.8 billion in 2005.

There were just five new IPOs on the TSX in the final quarter of 2006 with a value of $987 million compared to 19 new corporate and income trust issues worth $1.5 billion during the same period of 2005.

There were no new income trust issues following the Oct. 31, 2006, announcement by the federal government of a new policy on the taxation of income trusts. Income trusts had been the driving force in the market for the past three years. Through the first three quarters of 2006, 24 new income trust issues valued at $3 billion reached the market.

In 2005, there were 40 new income trusts listed on the TSX, worth $5 billion.

“There is no doubt about the role of income trusts in Canadian capital markets, or about the impact of the federal government’s new policy,” says Ross Sinclair, national leader for PwC’s IPO and income trust services. “Not only has the market for new income trusts stopped in its tracks, the market for all new issues has stumbled. Without a clear view of where the market for new issues is headed, companies have shelved plans for equity financing through the capital markets. Investors are still looking for a place to invest, and companies still need capital to grow. They’re just not meeting on the TSX.”

The largest corporate IPO in 2006 was the $525 million issue in the fourth quarter by Air Canada. The largest income trust IPO was the Teranet Income Fund offering at $700 million. IPOs from the transportation, oil & gas and technology sectors represented the largest new corporate issues; the largest new income trust offerings came from technology, transportation, service industry and real estate enterprises.

“The Canadian IPO market has averaged about $6 billion in the past three years with income trusts making up about 60% of the total market,” Sinclair concludes. “Without any new income trusts in 2007 or any new equivalent, the 2007 IPO market could move down to less than $3 billion. Numbers aside, the reality is that many middle market businesses will no longer have the access to the Canadian IPO market for capital as a result of the federal government’s October 31, 2006, announcement.”