As we reflect on 2011 and try to predict what 2012 will hold for capital markets in Canada, we are faced with the undeniable fact that the only identifiable “certainty” for the near to medium term is continued uncertainty and a degree of volatility. Debt levels remain high across the OECD and sovereign debt continues to be a risk to GDP growth in the European Union and the United States. A slowing economy in China represents an additional risk to global growth. However, the general view is that Canada’s fiscal situation remains comparatively strong in this environment.
On a macro-economic level, inflation has been trending downward in most OECD and BRIC nations. Interest rates remain at historically low levels with indications being that they will remain so for several years. Equities on major exchanges have maintained relatively low valuations and the situation in Europe is expected to keep the Euro under extreme pressure with the future viability of the European economic union in doubt. What does all of this mean for Canadian capital markets in 2012? There is reason to believe that Canada could be a relative bright spot in terms of capital markets activity in 2012 as cash-rich companies will look to make strategic acquisitions creating increased deal flow.
This overview includes a discussion of recent and expected developments in the Canadian capital markets. While it remains difficult to predict what may lie ahead in Canadian capital markets for 2012, we hope that this overview provides you with some useful information as you make your own assessment for the year to come.
IPO Update: A Novel Offering by The Royal Canadian Mint
The initial public offering of exchange-traded receipts (“ETRs”) by the Royal Canadian Mint in 2011 was a prime example of an unconventional financing in an unconventional time. Davies acted for the Royal Canadian Mint in its offering of ETRs. The ETRs provide evidence of ownership of physical gold bullion held in the custody of the Mint at its facilities in Ottawa. The offering was made on a prospectus-exempt basis with the exchange-traded receipts being listed on the Toronto Stock Exchange.
Supreme Court of Canada Rejects Proposed Legislation for National Securities Regulator
In May 2010, the federal government initiated a reference to the Supreme Court of Canada. A single question was asked: Does the federal government of Canada have legislative authority to enact the proposed Canadian Securities Act (the “Act”)? The Act would have created a single national securities regulator ultimately overseeing a unified national securities regulation system for Canada. In December 2011, the Supreme Court of Canada issued a unanimous decision that legislation proposed by the federal government creating a single national securities regulator is unconstitutional.
Selling The Deal: Proposed Changes to Marketing Rules for Public Offerings
In November 2011, the Canadian Securities Administrators proposed amendments to the rules for marketing activities in connection with public offerings of securities. The objective of the amendments is to increase the range of permissible marketing and pre-marketing activities in connection with prospectus offerings. While the proposals provide some degree of enhanced flexibility, the additional regulation that is being introduced by way of these amendments will have to be reconciled with current market practices.
New Rules on Compensation disclosure: Taking Aim at Compensation Committees and Consultants
Recent amendments to the compensation disclosure rules which take effect in the upcoming proxy season require disclosure about the risk assessments conducted with respect to an issuer’s compensation practices, compensation governance—including additional information about an issuer’s compensation committee—and whether executive officers and directors are permitted to enter into financial transactions to hedge equity-based compensation.
Wrapper Relief: The End of Wrappers?
In 2011, Davies sought relief, on behalf of a group of investment dealers, from the requirements of Canadian securities laws which dictate, in connection with a private placement of foreign securities into Canada, that a foreign offering document provided to Canadian purchasers be wrapped by a disclosure document containing certain mandated Canadian disclosure. If granted, the relief requested would eliminate technical barriers to entry for private placements by foreign issuers into Canada and should improve access to such offerings by Canadian investors.
Will “Go-Shops” Emerge in Canada?
In recent years, it has become fairly common in the United States for buyers, particularly private equity buyers, to agree to include in public company acquisition agreements a “go-shop” clause which permits targets to solicit offers for a limited period of time in situations where the target company has not conducted an auction or market check. Although not commonly used in Canada, go-shops appeared in a few Canadian public deals in 2011, which raises the question of whether we can expect to see increased use of go-shops in 2012.
China, India and Other Emerging Markets in The Spotlight
Amid investor allegations of accounting impropriety and fraud, securities regulators in Canada and the United States have begun focusing their attention on emerging market issuers that have accessed North American markets to examine their disclosure records, the vehicles through which they have accessed the markets (primarily through reverse takeovers) and the roles played by the underwriters and auditors in bringing these issuers to market. Last summer, the Ontario Securities Commission announced a targeted review of Ontario reporting issuers listed on Canadian exchanges and having significant business operations in emerging markets.
In October 2011, the Ontario Securities Commission announced initiatives aimed at resolving enforcement matters more quickly and effectively. The most notable of these was a proposal to allow enforcement actions to be settled without any admission of facts or wrong-doing by respondents in line with practice in the United States and under Canada's Competition Act. The proposal sparked an unanticipated controversy, resulting in an announcement by the Commission that it would be considered at public hearings.
Governance Themes in Canada in 2012
Shareholder democracy and the proxy voting system continue to be major themes in Canadian corporate governance in 2012. Specifically, shareholder democracy remains focused on initiatives that seek to give shareholders greater voice in certain corporate decisions, including say on pay, majority voting and shareholder proposals. The focus on the proxy voting system includes concerns with the role of the proxy advisory firms and the integrity of the proxy voting system itself.
Developments in U.S. Law Affecting Canadian Issuers
In 2011, the U.S. securities and Exchange Commission adopted a number of rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and issued proposals with respect to others. The piece included here provides an overview of several of the rules adopted in 2011 as well as one noteworthy rule scheduled to be adopted in 2012.