Hey America !......pssssst....Canada is for Sale !!
I am sitting here in Toronto in my hotel room getting set to go to the Annual Prospector's & Developer's Conference. This year about 400 mining and exploration firms will have their trade show booths set up and 17,000 visitors are expected to attend this year's 4 day event.
But this is not the subject of this quick little blog. No, instead I am writing to lash out again at the Harper Government and their assinine approach to dealing with the Income Trusts. For those readers who are not from Canada, an Income Trust is similar to an American Master Limited Partnership that pays out a goodly chunk of its cash flow as a dividend to shareholders. Back on October 31st, 2006 the Harper Government decided it would put the squeeze on the Trusts because too much corporate tax was being lost. The outcry from investors was deafening. But the Harper team must have huge wads of cotton stuffed in their ears for so far thay have offered no relief or no hint of retraction on this proposed policy. With the Federal Budget set to be delivered on March 19th, this proposed policy will be carved into stone.
So, will these Trusts spend untold sums of money on legal fees to restructure themselves back into a normal corporate tax-paying structure? If the actions by Borlaex Trust this week are any indication....the answer is NO. Boralex Trust has working interests in hydro-electric power generation facilities in Quebec and in the US North-East. Boralex said this week it is putting itself up for sale. And, what choice does it have? Investors are not going to give it any more investment capital knowing that it will be forced to start paying taxes in a few years time. Without capital, growth opportunities cannot be pursued. Without growth, a company withers away.
Large foreign institutions, private equity firms and the like are all no doubt licking their lips like a fox outside the proverbial henhouse. Here stands a chance to pick up Canadian assets at depressed prices. And it does not stop at Boralex. A large chunk of the Canadian energy sector now exists under the Trust structure. And the same capital argument applies. Without access to capital, growth opportunities cannot be siezed. This also raises the issue of all the junior and intermediate oil & gas firms out there who eventually stood to be bought out by larger Trusts. Now they are stuck....spinning their wheels with no likely suitor waiting in the wings.
Here is what I think will happen. Over the next year, we will see the demise of the Canadian resource sector. Foreign money (and a goodly amount of it from America) will find its way to Canada. Undervalued assets will be "snapped up" with wild abandon.
Attention shoppers !!! We are having a blue light special in aisle 5. On sale for the next while....Canadian resources. Stock up while supplies last !!! Once these items are sold out, the manufacturer tells us there will be no more made!!
How sad. How truly sad. Shame on you Prime Minister Harper. Shame on you.