Why ‘flow-through shares’ are a flop – by Kevin Libin (National Post – February 9, 2016)


You’d be hard pressed to find bigger fans of “flow-through shares” than the Bay Street lawyers and bankers using them to finance roughly a half-billion dollars in mining and energy deals every year.

But they’re hardly alone. Once dubbed by the Financial Post as “Canada’s quirky tax innovation,” flow-through shares were given high praise recently, in another national news outlet, by Richard Sutin, senior partner at Norton Rose Fulbright, who called them a “spectacular success, positioning Canada’s capital markets as a global leader in resource finance.”

And in its “Action Plan for Prosperity” a few years ago, the Coalition for Action on Innovation in Canada, chaired by Liberal big-thinker John Manley, urged policy-makers to build on the “success” of the flow-through share program — which “has helped make Canada a global leader in resource financing” — and expand them to other industries.

That would certainly seem to be where the momentum is heading. And if raising money for certain sectors is the policy goal, then that might make sense.

But just as important is whether that capital is going where it will provide the most efficient returns to the economy and investors. A new study suggests that, as successful as flow-through shares have been for those in the financing game, they’ve generally been a bad deal for shareholders and the economy.

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