Thursday, Nov. 5, 2015 marked the beginning of the privatization of Hydro One in what is being called “the biggest transaction in provincial government history,” according to CBC News.
Hydro One is marketing an initial 15 per cent of their company to public shareholders, with the possibility of that total rising to 60 per cent in later sales.
In a Nov. 5, 2015 news release, the Ministry of Energy explained that “the Ontario government will remain the largest shareholder of Hydro One after the [initial public offering], and, by law, no other shareholder or group of shareholders is permitted to own more than 10 per cent.”
The privatization of Hydro One offers many potential benefits, including the improvement of infrastructure budgets and plans, as well as the opportunity to reinvest in the economy. For many, the opportunity to buy shares from Hydro One seems like a promising prospect.
While the privatization of the initial 15 per cent is already underway, CBC News quoted Ontario NDP leader Andrea Horwath stating that it is “not too late to stop the next block of shares from going to market” and that it is possible to stop the privatization of the additional 45 per cent. In Horwath’s words, the plan to sell 60 per cent of Hydro One is a “disaster,” and she is not alone in this view. The topic becomes controversial when one considers the price of electricity rates for the consumers of Hydro One. Consumers may face the risk of a rise in electricity rates, which is a common concern when public entities go private.
The sheer magnitude of sales of company shares has sparked controversy among the Progressive Conservatives and the Ontario New Democrats, due to anticipation of a rise in rates after privatization.
CBC News quoted Stephen Lingard, the senior vice-president at investment firm Franklin Templeton Solutions, saying that “it’s not an automatic that prices go up, but certainly that would be a concern initially for ratepayers.”
Hydro One’s stock rates were raised 5.5 per cent higher than its initial stock value of $20.50, raising the value of shares to $21.62 by the end of their first day on the market. This means that the market raised $1.66 billion on Hydro One market debut.
Ontario’s Liberal government hopes to raise up to $9 billion after the 60 per cent privatization of Hydro One, as reported by the Toronto Star. $5 billion of this net value will be put forth to help settle the debt of this utility from the stranded debt of what was formerly Ontario Hydro. This debt is estimated at a total of $8.5 billion.
According to the Hamilton Spectator, Canadian markets have not seen the likes of such a large IPO since the $1.8 billion dollars in Sun Life shares put on the market in 2000. The privatization of Hydro One would thus mark one of the largest public transactions in Canadian share history.