Carrie Tait, Financial Post: Thursday, September 10, 2009
CALGARY -- It is an ironic stroke of financial fate for the Toronto Stock Exchange: Its resident oil, gas, coal and gold companies are among the resource outfits that have helped make Canada’s capital markets the planet’s friendliest place to nurture infant cleantech and renewable power companies.
And as green companies with head offices and assets all over the world turn to Canada in search of international investment and analyst coverage, the TSX, trying to gain further traction in the industry, this spring went on its first roadshow specifically dedicated to promoting its cleantech credibility.
“The primary reason [for listing in Canada] is there is a lot of entrepreneur capital [here] that understands exploration and is willing to take the risk in foreign places,” said Michael Atkinson, a director at Polaris Geothermal Inc. “We are the resource capital of the world, whether it be energy or mining, the similarities are there.”
Polaris, with assets in Nicaragua but its head office in Ontario, trades around a buck on the TSX. It says four analysts keep tabs on the company, and Bloomberg adds a fifth analyst to Polaris’ list. It sports a market cap of about $82-million.
Mix Canada’s resource expertise with its reputation as a welcoming home for microcap, small and mid-sized companies, and the TSX and the TSX Venture are trouncing mega-exchanges when it comes to the number of cleantech listings.
The TSX and its junior counterpart host 120 cleantech issuers, according to the exchange’s data as of June 30. More have since been added via initial public offerings. In the United States, the New York Stock Exchange houses 29 cleantech companies, the NYSE Amex claims eight more, and the NYSE Arca boasts two more, according to NYSE statistics for March 31.
Across the Atlantic, the NYSE Euronext and its junior sibling, the NYSE Alternext, host 25 cleantech companies. The LSE does not keep precise cleantech statistics, but spokesman Alastair Fairbrother said there are about 35 green companies on the senior exchange and roughly 100 more on the LSE’s small business incubator, the Alternative Investment Market.
Nasdaq does not track its green companies either, but Ron Pernick of Clean Edge Inc., a cleantech research firm, considers 76 Nasdaq-listed companies when building a clean energy index with the exchange.
What constitutes a cleantech company varies between markets, but the TSX claims to have more green listings than any other exchange, said Ungad Chadda, senior vice president at the TSX.
The push continues. The TSX, along with investment banks such as Toronto’s Cormark Securities Inc. and green energy specialists Jacob Securities Inc., went to Los Angeles and San Diego this spring to pitch the merits of the exchange to companies and investors.
“There’s at least three companies that have been in discussions with bankers and with the exchange about going public coming off of that roadshow,” Mr. Chadda said. “The fact that we were down there and showing our commitment, and showing our expertise and our track record in financing and listing these companies certainly pushed them across the line to make contact with some of the advisors.”
While Vancouver-based TSX Venture allow startups to scrounge up capital, it also provides a launching pad for companies to scrap their way onto coveted U.S. boards. Idaho-based U.S. Geothermal Inc., for example, started on the Venture, graduated to the senior Canadian exchange, and has since added a NYSE Amex listing.
“There’s certain requirements [such as size] for each of these markets,” said U.S. Geothermal spokesman Saf Dhillon. “The easiest platform to raise the initial capital was on the TSX Venture.”
Indeed, London’s AIM has liquidity problems, and a 2008 report by the magazine U.K’s Growth Company Investor and law firm Hunton & Williams, which has a team dedicated to the AIM, said the 79 companies it places in the cleantech category have raised only $2.6-billion over the past five years. The TSX, by comparison, says companies in its cleantech column raised $2.5-billion in equity during 2007-2008.
Further, it is hard for tiny cleantech companies to attract analyst and investor attention on the bigger international boards, which are also expensive places to list because of regulations such as Sarbanes-Oxley. The companies have to clear certain hurdles such as meeting a size standard.
But while the TSX and Venture exchanges have a larger population of cleantech companies compared with other exchanges, the greens on the bigger boards dwarf their Canadian competitors when it comes to total market capitalization.
Cleantech companies on the TSX and Venture exchanges had a combined market cap of about $9.55-billion as of July. The NYSE and its junior boards boast $94.74-billion worth of cleantech companies, and the Nasdaq claims $35.64-billion worth of the market, according to NYSE Euronext data dated March 31, 2009.
NYSE Euronext’s European boards host about $42.93-billion worth of green outfits, the LSE’s marketshare rings in at about $27.8-billion, and the Deutsche Borse Group is home to about $18-billion worth of the politically popular sector.
Small-cap companies, however, gravitate toward Canada, where $15-billion worth of shares traded in 2008, and $2.5-billion was raised during 2007-2008.
“Over the years we’ve developed a large pool of these companies trading on our market, so it attracts [more],” Mr. Chadda said. “The liquidity pool…and customer base that is already there…is continuing to attract more.”
Finally, the TSX’s push to attract foreign companies -- especially those in China -- has played a role in developing its cleantech sector.
“Chinese companies are more familiar with Canadian capital market[s], legal systems, [and] accounting rules than those in Europe,” said Walter Huang, senior vice-president of China Wind Power International Corp., a TSX Venture penny stock that went public in August and raised $27.3-million. China Wind Power, with headquarters in Ontario but with its operations in China, holds the exclusive rights to develop wind energy in China’s Du Mon County. “It is pretty hard to find talents who understand both China and Europe and can play a bridge role to bring Chinese companies to Europe.”
