For the Toronto Stock Exchange and that city’s financial community, the 1982 discovery of the huge Hemlo gold deposits in northwestern Ontario represented an acute embarrassment. The two companies responsible were listed on the Vancouver Stock Exchange and had raised their exploration money in Vancouver. Since the Hemlo affair, the TSE has waged an aggressive and successful campaign to list the best VSE companies in Toronto. And the Ontario Securities Commission has adopted a new policy, effective April 1, which will make it easier to raise money in Ontario for high-risk mining ventures. Now, some leading Vancouver brokers contend that, unless the VSE responds quickly, it risks losing its position as North America’s premier venture-capital market. Said Peter Brown, chairman of Vancouver-based Canarim Investment Corp. Ltd.: “We are losing the best of our business.”
Officials at both the TSE and the VSE acknowledge that an increasing eastward migration of stock-exchange listings has occurred. They add that as junior resource companies expand they have generally moved to the larger market in Toronto. But Jennine Ballard, the TSE’s director of original listings, said the exchange has also pursued specific Vancouver companies. But some members of the Vancouver brokerage industry insist that the TSE regularly sends staff members west on recruiting missions. At the same time, said Canarim’s Brown, the VSE is contributing to its own downfall with an excessive number of unnecessary and obsolete regulations and staff shortages. The VSE, he said, has become the slowest stock exchange in the country to approve company listings and share offerings.
As the competition between Toronto and Vancouver has intensified over the past four years, the VSE has lost more than 100 listings to the TSE. The Vancouver exchange still lists about 2,500 companies, including a record 307 new listings last year. By comparison, the
TSE lists 1,200 companies and accepted 180 new listings in 1987. But Brown, whose company has dominated both the trading and the underwriting businesses in Vancouver for 18 years, told Maclean’s that the TSE has taken the VSE’s best companies and is now recruiting smaller firms. Said Brown: “We run the risk of being the exchange of listings nobody wants.”
Brown added that, until recently, the VSE has not even officially recognized the threat from the TSE and other exchanges. A junior company trying to raise money in Vancouver or obtain a VSE listing can expect to wait as long as three months, he said, because the exchange has become overwhelmed with trying to enforce an unwieldy number of arcane and obsolete rules. By comparison, he said, a company can get both a listing and financing in Toronto or Montreal within a month to six weeks. As a result, the VSE’s former dominance over the speculative financing market is quickly eroding. Said Brown: “A lot of bureaucratic arrogance has alienated our client base.”
As the VSE has slipped, the TSE has been advancing. Listings director Ballard said that the exchange holds a cocktail reception in Vancouver once a year for client companies, their financial advisers and securities-industry lawyers. The listing department sends a delegation west at least three times a year to meet lawyers whose clients may be interested in a TSE listing.
Still, some Vancouver mining execu-
Capital for Communists
When venture capitalists need money they frequently issue shares on the Vancouver Stock Exchange. There, high-rolling promoters often hard-sell a concept to inflate share prices and take advantage of investors. As a result, the exchange is an unlikely place to find a Communist Chinese firm. But on March 11 a subsidiary of China Everbright Holdings Co. Ltd., a mammoth China-owned corporation, will sign an agreement with VSE-listed Danbus Memory Systems Inc. of San Diego, linking it to the VSE. In the process, said Danbus director David Dale, “we are going to learn a lot about each other.”
China Everbright was incorporated in Hong Kong on May 10, 1983. The Chinese government created it to provide training for young executives in Hong Kong’s intensely capitalist economy, and to gain expertise to create high-tech industries abroad and at home. To that end, Everbright has established business relations with more than 2,500 financial, industrial and commercial interests around the world. It also operates more than 30 subsidiaries, including Jasmine Digital Corp., which is based in China near Hong Kong. Danbus will take a 20-percent interest in Jasmine, and the Chinese firm has taken a significant ownership position in Danbus. Company officials say the Canadian firm has not promoted its links to Everbright, but they add that when the Canadian investment community realizes the enormous size of its silent partner,
tives claim that they have experienced a hard sell from the TSE. Said Frank Lang, a partner in the Hughes-Lang Group, which controlled the two companies responsible for the Hemlo discovery: “Certainly, we have been under tremendous pressure from the TSE to list many of our stocks on the Toronto exchange.” Brown added that, when Van-
couver promoter Murray Pezim visited Toronto recently, an exchange official phoned his hotel at 8 p.m. to discuss listing his companies on the TSE. And John Woods, editor of a daily newsletter called Stockwatch, which monitors all announcements affecting VSE companies, said the Toronto exchange has begun listing junior companies at an
earlier stage. The TSE used to wait until a company had almost completed a development program and was ready to begin production. But over the past couple of years the TSE has listed VSE companies even before they had finished exploring a property. Said Woods: “We are losing the $10 stocks and replacing them with 35-centers.”
The Vancouver exchange faces a new threat from the Ontario Securities Commission policy on financing junior mining ventures. Under the current rules, fees and commissions paid to securities firms, lawyers, promoters and accountants frequently absorb up to 70 per cent of the proceeds from a public offering. By April, 1990, maximum commissions will be cut to 35 per cent of the offering. As well, the OSC will allow a company to sell shares publicly after it has raised at least $60,000 privately and spent the money on exploration. Said Rocco Schiralli, a Toronto lawyer and mining expert: “The discovery of some tremendous ore bodies, particularly Hemlo, by companies that were financed in Western Canada has been an embarrassment to Ontario.”
The new OSC policy is widely viewed in Vancouver as an attempt by Ontario to capture some of the high-risk financing that has been arranged almost exclusively through the VSE. James Mackie, the VSE’s manager of filings and listings, said that the OSC policy is almost identical to the rules that apply in British Columbia. Said Mackie: “The whole system they’re proposing has to be very flattering to us as an exchange. It’s obviously intended for the same market participants.” But VSE chairman John Mathers said that junior mining companies will still be better served by the Vancouver exchange. He added that B.C. regulations already stipulate that 70 per cent to 75 per cent of the money must be used for exploration.
Despite the criticism directed at the VSE—largely from some of its own members—Mathers insists that the exchange has moved to solve some of the problems that were causing delays. He said that applications for new public offerings and listings can now be approved within two months provided a prospectus is properly prepared. He added that the loss of VSE listings to Toronto has always occurred as companies grew and needed access to larger pools of capital. But Canarim’s Brown does not accept that explanation. He said that the VSE will have to respond to the new competitive challenge from Toronto and other exchanges. Otherwise, said Brown, Vancouver’s days as North America’s leading venture capital market are over.
—D’ARCY JENISH with FRANK O’BRIEN in Vancouver
Danbus shares will rise in value.
That would make Danbus’s association with Jasmine and Everbright highly lucrative.
Part of Everbright’s mandate is to import technology into China— and Hong Kong, which will revert from British to Chinese control in 1997. As a result, Danbus will supply the technology for a new computer disk drive, and Jasmine will provide the cheap manpower to manufacture it in China. That will enable Jasmine and Danbus to undercut much of their competition.
Dale said that, ultimately, a manu-
facturing plant will be built in China, but for now the company plans to assemble the drives in the Vancouver area. Dale said Everbright will also fulfil its training obligations because the firm’s executives will get a firsthand look at the VSE and its venture capitalists. Although Dale said that the Chinese have not specifically targeted the VSE for that purpose, he added that the agreement with Jasmine introduces the Chinese to the complexities of Canadian jointventure financing. And as they are, they will also be introduced to the volatile workings of the VSE. □
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