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Bay Street takes new run at Hydro One offering

A hydro tower is shown in Toronto on Wednesday, November 4, 2015. Ontario's Hydro One says it is assisting Canadian law enforcement agencies in an ongoing investigation into a possible cyber threat against the electricity distributor. THE CANADIAN PRESS/Darren Calabrese

Investment banks that underwrote Hydro One Ltd.'s $2.8-billion equity sale are taking a second stab at selling a large chunk of the shares after investors balked at the initial deal.

Last week, Ontario Premier Kathleen Wynne's Liberal government announced the bought-deal offering, selling 120 million shares at $23.25 apiece and reducing its stake in the Crown utility to 49.9 per cent.

Because of the deal terms, the province banked the cash as soon as it launched. However, weak investor demand for the issue left underwriters holding nearly half of the shares on offer.

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On Thursday, investment banks led by Royal Bank of Canada and Canadian Imperial Bank of Commerce priced the remaining shares, amounting to 42 per cent of the total deal, at $22.60 each, according to people familiar with the situation.

Assuming the sale goes well, it would come as a big relief for non-bank dealers in the syndicate, many of which lack the scale to carry such a large liability of unsold shares. However, it spells smaller fees for all investment banks involved.

Tepid demand for the original sale, which closed on Wednesday, reflected investor fatigue with Hydro One after the utility's initial public offering in late 2015 and a subsequent share issue the following spring.

It also contrasted with recent billion-dollar deals that sold quickly in the oil patch. TransCanada Corp. and Cenovus Energy Inc. are among companies that have issued shares to fund major acquisitions.

Ms. Wynne's debt-saddled government has been paring its stake in the Crown utility to raise cash ahead of an election next year, with proceeds earmarked for transit and infrastructure. The sales have so far netted the province $9-billion.

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About the Authors
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

Business Columnist

Andrew Willis is a business columnist for the Report on Business at The Globe and Mail, based in Toronto.He has been in business communications and journalism for three decades. More

Jeff Lewis is a reporter specializing in energy coverage for The Globe and Mail’s Report on Business, based in Calgary. Previously, he was a reporter with the Financial Post, writing news and features about Canada’s oil industry. His work has taken him to Norway and the Canadian Arctic. More

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