A tectonic shift is reshaping capital markets, but PricewaterhouseCoopers (PwC) suggests it remains to be seen what the ‘new normal' will be.
In a recently published PwCCF Capital Markets Flash, the consultants noted that the TSX-Venture Exchange ended 2008 with an aggregate market capitalization decline of 71% while several majors experienced exorbitant decreases.
Notable declines from peak to trough last year include: BHP Billiton (54%), Vale (69%), Rio Tinto (78%), and Anglo American (67%). Meanwhile, some miners unable to execute cost reduction strategies or service debt, are seeking bankruptcy protection, the report said.
PwC suggests senior or strong middle-tier producers and developers may likely be the only candidates for new listings [on the TSX] for the remainders of 2009.
Key trends in 2009 will include a focus on liquidity with investors requiring issuers to files prospectuses to qualify shares for public distribution, thereby making four month hold paper less common. PwC also noted an increasing preference for convertible debt structures and/or equity sweeteners such as warrants or rights.
Meanwhile, PwC advised, The lender landscape has dramatically changed. Hedge and mezzanine funds have largely exited the market. Commercial and corporate banks are open for discussions, but are extremely cautious and conservative.
For strong middle-tier and senior companies, more onerous structures and terms are likely, PwC predicted. Mining companies can expect high rates with upfront fees, strict requirements for bankable feasibility studies, tight credit parameters and preference for operations in stable jurisdictions. PwC's analysis also suggest lenders will be less willing to negotiate covenants, will require offtake agreements as a prerequisite to secure financing, and will impose strict hedging requirements.
The PwC report also forecast three pervasive M&A trends expected to dominate this year including:
1. Chinese companies and Sovereign Wealth Funds will acquire North American and Australian miners to secure resources and influence community negotiations.2. Large seniors may deleverage by selling assets or operations.3. Cash-rich seniors will capitalize on low-industry valuations by pursuing strategic acquisitions of junior and middle-tier companies.Keep your hard hat on-there are rough times ahead in the mining industry, PwC concluded. Keep one eye on your survival, but don't lose sight of the future.