Ontario to launch IPO for Hydro One power company

- TORONTO  - The province of Ontario, Canada's biggest energy market, said Wednesday it will turn power distributor Hydro One into a public company in what is likely to be the biggest initial public offering in Canada's history.

The deal, to be one of Ontario Premier Mike Harris's last major policy acts before he steps down next year, would be ''several times larger'' than the C$2.26 billion ($1.5 billion) IPO launched by Canadian National Railway when it was privatized, he said.

The country's biggest IPO was the C$2.49 billion offering by Manulife Financial Corp. in 1999.

Harris said proceeds would go toward paying down part of the C$21 billion ($13.5 billion) in stranded debt left when the provincially-owned Ontario Hydro power utility was split up in preparation for privatization and market deregulation.

``This IPO will go hand-in-hand in providing more choice and more competitive energy rates for Ontario consumers. We will continue to regulate the energy sector to ensure the market is fair. Ensure it is open, ensure consumers are given the best possible price,'' he said at a press conference following the announcement.

Harris said the exact date for deregulation of the provincial power market will be made public ``before Christmas.''

The process is nearly two years behind schedule.

Earlier this year, the government said it would open the market by May 2002 and Harris Wednesday reiterated that a spring deadline was still in the cards.

Though Harris refused to provide specifics on the IPO, analysts said the deal could be carried out in several steps.

Harry Koza, senior Canadian markets strategist at Thomson IFR, said the provincial government may opt to privatize Hydro One in stages to make it easier for the domestic market to absorb.

``It's good that it's an Ontario company as opposed to a federal one because the feds would have a real problem with foreign ownership whereas Ontario probably is less doctrinaire about that,'' he said.

Harris acknowledged that launching an IPO was just one of three options his government investigated before making the choice. Also studied was turning the big generator into a non-profit entity instead of a privatized commercial company or selling the company outright.

``The announcement indicates that the government is coming to its senses. After scaring us all with the prospect of turning Hydro One into a co-op controlled by the major electricity consumers, they've decided to return to the original process of getting the government out of this particular business,'' Tom Adams, executive director or electricity watchdog Energy Probe, told Reuters.

However, Adams said he was disappointed that the government didn't choose to ``break up the company and auction off the pieces.''

``We're afraid that selling this heterogeneous basket of assets, some good and some bad, is not likely to maximize the value for the purposes of debt reduction.''

Hydro One is one of two main spinoffs from Ontario Hydro, the sprawling provincial power utility. The other is Ontario Power Generation, the province's biggest electricity provider.

Last month, Hydro One reported third-quarter net income of C$103 million on revenues of C$880 million. The company has C$10 billion in assets and reported revenues of C$3 billion in 2000.