On June 15, 2017, the Ontario Securities Commission (“OSC”) released OSC Staff Notice 45-715, 2017 Ontario Exempt Market Report (“Report”) which summarizes capital raising activity in 2015 and 2016 by corporate (non-investment fund) issuers in Ontario’s exempt market. The Report also examines the impact of recently introduced prospectus exemptions which were designed to facilitate capital raising for small and medium-sized enterprises (“SMEs”). The recently introduced prospectus exemptions include:

  • Existing security holder exemption – February 11, 2015
  • Family, friends and business associates exemption – May 5, 2015
  • Offering memorandum exemption – January 13, 2016
  • Crowdfunding exemption – January 25, 2016

Highlights

In 2016, Ontario residents invested approximately $72 billion in over 2,500 non-investment fund issuers through prospectus-exempt offerings. Canadian issuers accounted for only 37% ($27 billion) of the capital raised in Ontario, but represented almost two-thirds of issuers (approximately 1,600 issuers) participating in Ontario’s exempt market in 2016.

The key findings highlighted in the report include:

  • Approximately 57% of Canadian issuers participating in Ontario’s exempt market were small issuers, defined as issuers raising less than $1 million annually. Notwithstanding the large number of small issuers, they only accounted for less than 1% of annual gross proceeds raised by Canadian issuers.
  • In 2016, the number of small Canadian issuers and the gross proceeds raised by these issuers rose significantly, by 30% and 40%, respectively. This increased activity was concentrated among small Canadian issuers in three main industries: natural resources, consumer goods and services, and real estate and mortgage finance.
  • The Report found that since the new prospectus exemptions were introduced starting in 2015, they have been supported by a significant amount – 25% – of Canadian issuers. In 2016, approximately 400 issuers relied on the new prospectus exemptions to raise approximately $133 million, with close to half of these issuers raising capital in Ontario for the first time since 2014.
  • Natural resource issuers were the largest issuers relying on the prospectus exemptions Among issuers relying on the new prospectus exemptions at 37%, while real estate and mortgage finance issuers accounted for most capital raised at 70%.
  • Accredited investors, mainly institutional investors, contributed over 90% of the total capital invested in the Ontario exempt market. However, most of the capital was invested in large issuers, primarily foreign-based and consisting of financial entities such as banks, private equity funds, and asset-backed structured finance vehicles.
  • Within the context of the broader Canadian capital market, Ontario’s exempt market accounted for less than one-fifth of the total gross proceeds raised by Canadian issuers domestically and less than one-tenth of gross proceeds raised globally.

OSC Staff Notice 45-715 2017 is available for download from the website of the Ontario Securities Commission.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.

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