With markets crashing and global economic woes on everyone’s minds, it’s not surprising that equity financing in the third quarter of this year took a major tumble.

According the Investment Industry Association of Canada — it released its New Issues & Trading report on Monday — equity issuance was down 44% from the second quarter, to a total value of $6.5 billion, the lowest since Q1 2002.

“It’s basically what we were expecting,” says Jack Rando, the IIAC’s director of capital markets.

He attributes the dismal numbers to the issues dominating the news — the worldwide economic slowdown, concerns with the global financial system — which are contributing to a downward pressure in resource prices.

“The environment isn’t ideal for new equity offerings, so they’ve been very subdued,” Rando explains. “People are waiting for the light at the end of the tunnel before getting back into equity markets.”

That light, however, doesn’t look as though it will be turning on anytime soon. And when it does, the industry has a long way to go before it can fully recover. In Q3, the IIAC says, IPOs were “nonexistent” on the TSX. Only small caps on the venture exchange raised cash — a paltry $172 million on 58 offerings. It’s a 75% drop from last quarter.

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    • The report also reveals that there were only $900 million worth of secondary offerings, down from $3.7 billion last quarter. Private placements, though, were able to make up some of the loss, with $2.6 billion in financing, up 15% from Q2.

    Looking ahead, it’s highly unlikely that equity issuances will rebound in Q4. The price of oil, which has a significant impact on Canadian investments, has dropped even further than where it was at the end of Q3, and the markets have been more volatile in October and November than they have been in years.

    While Rando can’t make a concrete prediction on how the equity landscape will look at the end of 2008, he will say, “Next quarter’s outlook isn’t optimistic. Let’s just put it that way.”

    And if equity financing doesn’t increase over the next few quarters, it could have a devastating economic impact. “It’s a big concern for the economy as a whole,” says Rando. “If current conditions persist, access to capital for some corporations will be an issue. It might force some companies to reduce their expenditures, which will further fuel more economic slowdown.”

    Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

    (11/17/08)