By Ron Friesen
Kinder Morgan Canada Ltd (TSX:KML) launched their IPO last week at C$17.00 per-share, then opened on the TSX this past Tuesday, May 30 at C$16.06, closing first-day trading at C$16.24. On the morning of day two trading was around C$16.05. Day three, mid-day TSX:KML has rebounded to C$16.41. Investors are showing their opinion of value, and perhaps there is a lack of faith and willingness to sit through the anticipated long fight ahead as the BC NDP-Green party alliance is talking tough. The bounce in early trading seems to demonstrate the uncertainty and varied optimism in the economic strength of the big picture for KML and the Trans Mountain pipeline expansion.
Of course, Christy Clark and her BC Liberals have announced they will test their forty-three seat election results and ask the house for confidence to form the next BC government. What if…just one seat of the eighty-seven-seat legislature should stray away from the NDP-Green alliance? Just one elected candidate goes rogue on their party line, or becomes an independent and the BC Liberals have a chance to form government with forty-four votes. Of course it would be less than solid ground, but it could either raise hope for those positive about the Liberal agenda, or it could more likely sustain the uncertainty now facing the population, industry and investors.
Back to the more likely scenario where the BC Liberals fail to win the confidence of the house and the yet-to-be-tested alliance between the BC NDP and Green parties allows for John Horgan to lead the NDP government in BC. Is 3 Years of Steady Economic Growth in BC Going To Disappear With The Liberal Majority?
It will likely take some time for business leaders and investors to become confident this NDP-Green parties cooperative arrangement will work. The untried support agreement is certainly less stable than a coalition, and may not be in the best interest of British Columbians, and will almost certainly undermine the immediate confidence in British Columbia from global industry and investors.
However, it is not in the nature of capitalism to retard forward momentum for any length of time. It is like fluid. Any abandoned opportunity will soon be filled by a competitive initiative to occupy the space for benefit and profit. In spite of the recent BC provincial election resulting in the first minority government in BC since the 1950’s it remains to be seen if the situation will erode investment and confidence in the province’s economic future. I do not suspect participation in BC’s long-term economic opportunities to be broadly abandoned. It is realistic however, to expect the province’s economic growth to be tempered by the uncertainty resulting from the current and developing provincial political landscape.
We may see some investors play hard, hopefully within their risk tolerance.
It would seem more apparent certain interests have more to be concerned about than others. As mentioned earlier, Kinder Morgan Canada Ltd. (T-KML) faltered on their first day of trading on the TSX. After raising a reported C$1.75B on their IPO their early performance on the TSX shows a significant number of investors are not prepared to stand by during the expected delays.
Then there is Alberta. Premier Rachel Notley’s sound bite on Wednesday’s news broadcasts, portray her in my mind as a desperate fighter. Whenever I hear “…mark my words…” it’s like the bell ringing to start a round in the ring. It comes across as defensive, and Alberta must truly be feeling the financial pressure of more delays promised by BC’s new two-party alliance.
While reading Prime Minister Trudeau’s comments from Rome on the subject of the Trans Mountain pipeline project I can visualize him lacing up the gloves in his corner, while John Horgan and Andrew Weaver in their corner prepare for fist-a-cuffs with the feds over the next year or two. The Trans Mountain project will affect the politicians concerned, and the economies of Kinder Morgan and Alberta more than the economy of British Columbia, I suspect.
From what has been said publicly the expected NDP-Green Parties in BC will have their teeth into possibly dismantling or downsizing the Site C Dam, the Massey Tunnel Replacement and LNG. A $15.00 per-hour minimum wage and other initiatives throughout the province will have an affect on small and big business. Listening to Weaver and Horgan many hear signals suggesting jobs in the province are likely to be lost, along with the usual loss of government tax revenue to combine with growing unemployment compensation costs for taxpayers. The Horgan-Weaver team seems to have keyed in on technology as a future growth target for BC. Good. There is excellent opportunity here. And Horgan’s commitment to forestry is admirable. But it is a huge fight he will need to engage with in the US with their softwood lumber position. The US is threatening to place a 20 per-cent tarriff on BC softwood lumber products.
Many of the provincial NDP’s announcements seem to signal initiatives expected to reduce existing government net revenues through the elimination of tolls on major thoroughfare bridges, jeopardizing huge taxation windfalls from the super projects and stepping up spending on social programs. And on the NDP record we can anticipate where the government will go to cover budget shortfalls.
It’s going to be interesting to watch. This is an untried, unproven and some say un-natural non-coalition arrangement between two political parties in an effort to defeat the incumbent Liberals and enable the provincial NDP Party to govern in BC. Investors should be nervous, I agree, as with any significant political change.
On the other side…
On the other side there is always enthusiasm for change and ambition amidst new opportunities. It is in this gap, before things settle in and the government defines direction where wise money remains conservative. The ‘gap’ is also where fortunes can be made or lost by those with higher risk tolerance, with ties to the future benefactors of change, and those with access to reliable early intelligence.
It seems early to me, but the British Columbia Real Estate Association released a report on May 30 suggesting continued economic growth in BC. The BCREA report looks at low unemployment fuelling continued retail and service sector growth and the low Canadian currency valuation favouring export manufacturers and tourism. The anti-Canadian trade talk coming from the US government is certainly going to temper growth in BC, but according to the report the province’s growth should continue at a good clip. I wonder if and how the election results, combined with the aftermath political alliance have been factored into their report.
We can only imagine the phone calls and meetings taking place in Victoria and around the province as the Liberals and NDP back rooms are consolidating their own members and making every attempt to lure others towards their cause. Just one stray vote in confidence of the BC Liberals and everything changes. One thing seems certain, though. Barring an early return to the public polls the next four years promise to be an interesting nail-biter for all who depend on public policy to fulfill their objectives. I hope it works out for most of you.