It was all about the PrairieSky IPO in the Canadian business world this week.
The hotly-anticipated IPO, the largest in Canada in 14 years, rocketed out of the gate during its IPO as investors grabbed whatever they could of an asset that is the new darling of stock markets.
The company began trading Wednesday under the ticker PSK. Interest was high—shares gained more than 30 per cent on the day. “This IPO is all I’ve been hearing about lately,” a Calgary advisor told BNN.
At $3.64-billion the offering is a large one. Units of the new trust are particularly desirable to investors.
The royalty trust holds “mineral fee title” to a vast 5.2 million acres of Alberta land, part of a 1880s-era deal between Ottawa and the Canadian Pacific Railway. The company received the land and the minerals rights when the land was granted by the crown. This is unusual. Normally land sales don't include mineral rights. As a result there are no government royalties paid when resources are extracted from this land. The profits from drilling flow straight to the company.
Encana ended up with the land when PanCanadian Energy, formerly the oil-subsidiary of CP, merged into Encana. PrairieSky will be the manager of the land, portioning out drilling contracts and collecting fees from energy companies operating on the land. As an energy trust, profits already ready flow in a tax-efficient manner to investors—because there are no royalty payments on production, there is lots of cash to pass along to investors. Up to 85% of the free cash of the company will be able to be flowed directly to investors.
In an era of rock-bottom interest rates and low bond returns investors are desperate for yield, no wonder the interest. The offering was significantly overbought and insitutions were said to be negotiating for allotments. “The demand is higher than I’ve ever seen,” said one commenter.
Underwriters can sell an additional 7 million shares in the next 30 days. Seems a good bet this will happen consideirng demand.