Asset Optimization - Broadening Ownership of Hydro One
On September 17th, Hydro One filed a preliminary prospectus with the Ontario Securities Commission (OSC) and other Canadian securities commissions for review. The prospectus included details about Hydro One and the offering to help potential investors make an informed decision.
On October 9th, Hydro One filed an amended and restated prospectus with the OSC and the other Canadian securities commissions.
A supplemented prospectus is expected to be filed later in the fall.
Pre-IPO Special Dividend
As stated in the document filed by Hydro One, the company is taking steps to recapitalize its subsidiaries similar to companies in the private sector and the Province expects to receive a $1 billion special payment, which would contribute to the $5 billion debt pay down. This special payment is broken down in the amended and restated prospectus as an $800 million special dividend and $200 million in additional payments-in-lieu of taxes.
2015-16 Asset Optimization Targets
Hydro One has indicated in the amended and restated prospectus that as a result of the revaluation of its fixed asset, there will be an enhanced deferred tax benefit. A deferred tax benefit will result in a one-time fiscal gain by the Province.
Detailed information on the estimated deferred tax benefit is provided in Hydro One's amended and restated prospectus, including the proforma financial statements. Based on the document, an estimated deferred tax benefit of $2.6 billion would result in a benefit to the Province, at consolidation, of about $2.2 billion, based on the Province having about an 85 per cent share of Hydro One following the IPO. The actual deferred tax benefit will depend on the actual results of Hydro One at closing of the IPO.
As this deferred tax benefit results in a net fiscal gain, the Province proposes to credit it, along with other net fiscal gains, into the Trillium Trust.
The Trillium Trust provides for the dedication of net proceeds from the sale of qualifying provincial assets to fund infrastructure projects that will create jobs and strengthen the economy to build Ontario up. The Province remains committed to allocating all net fiscal gains from broadening the ownership of Hydro One to the Trillium Trust.
The Province will move forward with amendments to the Trillium Trust Act, 2014, that would, if passed, name the Province's shares in Hydro One as a qualifying asset and ensure that all fiscal benefits from the estimated gain would be directed to the Trillium Trust.
These amendments to the Trillium Trust Act, 2014 would allow for all fiscal benefits to be credited to the Trillium Trust for the sole purpose of investing in transit, transportation and other priority infrastructure projects. These amendments would ensure the Province remains on track to dedicate approximately $4 billion to the Trillium Trust and $5 billion towards debt repayments, as outlined at the time of the 2015 Budget.