Long-time Calgary investment banker Danny Mah has moved over to a firm that is offering what he calls a "niche" source of financing to small- to intermediate-capitalization exploration and production companies.
PearTree Securities Inc. set up shop in Calgary late last year with Mr. Mah as its managing director to bring the firm's brand of "flow-through donation financing services" to Canada's struggling oil and gas industry. PearTree Securities is a subsidiary of Toronto-based PearTree Financial Services Ltd. and has been involved mainly in the mining sector since 2007.
Mr. Mah says the firm's financing process is a win for struggling energy companies looking to raise money, major Canadian philanthropists hoping to cut the after-tax cost of charitable donations, charities hoping to raise money from those philanthropists and institutional investors that might be able to buy shares at a discounted rate.
Flow-through shares allow investors to reap the benefit of tax deductions related to oil and gas, mining and renewable energy companies' exploration expenses. The company renounces the tax deduction in order to raise additional capital from those investors. Flow-through shares usually sell at a premium because they come with tax breaks.
What PearTree does with flow-through shares is easy to understand if you're an accountant or investment banker. But for the rest of us, it goes something like this: The philanthropist subscribes to a company's flow-through shares, thereby accessing the associated tax benefits. The donor then immediately gifts the shares to their chosen charity. The charity then promptly sells the shares to an institutional investor, arranged through PearTree, to get their cash. The original donor gets the charitable tax receipt. PearTree's fees, charged to donors, work out to about 13 per cent of the net donation amount. "Every party here is happy," Mr. Mah says.
PearTree Securities has $250-million in available capital this year for investment opportunities in mining and the oil and gas sector. Mr. Mah says PearTree is now involved with about one-quarter of all mining flow-through financings in Canada.
And the new Calgary office could not come at a better time, says Mr. Mah, 43, who has been working in investment banking in the city – both for BMO Nesbitt Burns Inc. and Clarus Securities Inc. prior to PearTree – since 1996.
He says PearTree is different in that it will buy both 30-per-cent deductible Canadian development expense flow-through shares as well as 100-per-cent deductible Canadian exploration expense shares – the type of flow-throughs investors have traditionally sought. And for those companies that are skeptical of the value of flow-through share schemes, Mr. Mah added that about 90 per cent of all the shares done through the PearTree platform are acquired by strategic partner relationships outside of Canada, bringing in foreign investment that might otherwise not be available.
"We have issuers who are very happy to be able to raise capital in what is a very capital-constrained environment."