Capital Markets Mid-Year Report 2016

Overview

Uncertainty lingered at the outset of 2016 in Canada from a slowdown in activity that began in the previous year: Q4 2015’s total offerings raised an aggregate of approximately C$71 billion in gross proceeds, roughly C$6 billion below the average of the previous three quarters of 2015 combined. But as the first quarter of 2016 hit its stride, moderate gains in the dollar and promising activity—including much-welcomed upticks in the mining and oil and gas sectors—sparked optimism. However, these earlier gains have been stemmed by setbacks both macroeconomic and in the form of devastating wildfires suffered by the Fort McMurray community and surrounding areas. While the Bank of Canada has suggested that, among other factors, a return to production and repair efforts in Alberta and Saskatchewan may help spur growth in the last half of the year, Canada’s economic outlook today looks a lot like it did at the start of 2016: low interest rates, low commodities prices, and a low dollar.

In addition to maintaining a steady watch on broader market conditions, boards on both sides of the Canada/U.S. border continue to face corporate governance challenges on a variety of fronts. In just a few years’ time, shareholder-nominee “proxy access” by-laws have become commonplace in the U.S.—a trend stirring discussion about shareholder engagement on Canadian boards. The push for scrutiny on executive compensation practices shows no signs of abating; in this year’s report, we take a closer look at what 2016 S&P/TSX60 proxy circulars can tell us about public companies’ latest approaches to executive compensation. And with managing data breach risk by now a part of most board mandates, we are seeing governance organizations responding with best practices to combat and mitigate cyber attacks.

Other developments will be capturing market players’ attention in the year ahead: in the United States, long-anticipated changes to inversion rules, if finalized, may have an impact on more than just inversions. In Canada, the first budget from the new federal government has brought a number of new tax rules targeting mutual funds and linked notes that will unsettle some foundational investment assumptions related to these financial products. Canadian investors have not stood still either, as some have increasingly looked to class action litigation to try to expand liability for underwriters acting in the Canadian secondary transactions market.

We hope you enjoy our analysis of these key issues driving the capital markets in 2016. Should you wish to discuss any of the topics in this report, please feel free to reach out to the authors.

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