The Ontario Premier says the province is considering selling a stake in the provincial electricity transmission and distribution company

Kathleen Wynne, Premier of Ontario, said today that the province is considering whether to sell a stake in Hydro One Inc., the province’s electricity transmission and distribution company. A provincial advisory panel is continuing to explore the option of offering a minority stake in Hydro One as part of a plan to pay for new infrastructure, reports BNN. Wynne said that any sale of Hydro One would not change power rates.

“We haven’t got the final recommendations yet, but we’ve been clear that we are going to build transportation, transit infrastructure,” said Wynne. The government is “looking at assets that exist and leveraging those in order to be able to find those dollars to be able to invest in the infrastructure we need in 2015 and going forward.”

Reports indicate that Ontario was exploring selling a 10% to 15% stake in Hydro One, and could follow up with additional stock sales. The electrical transmission company has $22.6 billion in assets, recorded $6.5 billion in revenue in 2014 and 5,600 full-time employees, according to its website.

When asked for comment regarding the potential offering of Hydro One, Bill Harris, partner and portfolio manager at Avenue Investment Management, said that there were four problems with the possible deal, including:

  • The grid likely needs reinvestment and shouldn’t pay out dividends right away,
  • There was never an economic model built into Hydro One’s development to support a portion of it being sold on the public market,
  • There is a lot of debt associated with Hydro One, and
  • That 51% or more of Hydro One needs to be in the public market in order to encourage good management.

Despite those concerns, Harris believes that given the right price, there could be a market for this deal. “If you floated this (to the public market) you would find a price that balances in the risks.” However, he said an agreement between investors and the government on share prices may be another hurdle.

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