November 26, 2008 / 4:40 PM / 9 years ago

CANADA STOCKS-TSX drops as big BCE deal in jeopardy

4 Min Read

* BCE deal in doubt, shares drop 37 percent

* Energy group ekes out small gain as oil price rises

* National Bank of Canada warns of further ABCP charges

TORONTO, Nov 26 (Reuters) - The Toronto Stock Exchange's main index dropped 1.7 percent on Wednesday as the big leveraged buyout of BCE (BCE.TO) looked to be in jeopardy, while a gloomy corporate and economic outlook weighed on sentiment.

Shares of BCE, Canada's biggest telecom company, sank about 37 percent to C$24.32 after it said the world's largest leveraged buyout may be in jeopardy. [ID:nN26331920]

BCE, which accounts for about 3.5 percent of the index and was the most heavily traded stock on Wednesday, said that it was unlikely to close the C$34.8 billion deal after its accountants said that the company that would emerge from the buyout would not pass a solvency test because of its huge debt load.

"I don't know what they might do to put some breath in this and try to keep this thing alive. I don't think the bankers will negotiate after this to be perfectly honest. They could reprice it but I don't think that it will happen," said Steve Ibel, an institutional equities trader at Beacon Securities, in Halifax, Nova Scotia.

"I'm surprised the Canadian markets aren't being pushed down a little bit more...But oil and gold, materials are buffering some of the negative BCE impact."

The news dragged the index's telecoms group down more than 11 percent. BCE's main rival, Telus (T.TO), was down 5 percent at C$36.90.

Shortly after 11:00 a.m. (1600 GMT), the S&P/TSX composite index .GSPTSE was down 1.7 percent, or 142.06 points, at 8,300.80. Five of the index's main 10 groups were lower. But five sectors advanced, including the heavyweight energy and materials groups, which helped the index trim losses.

The energy group edged up 0.5 percent, tracking the price of oil. Crude was above $51 a barrel, paring gains after weekly U.S. oil stocks data showed inventory increased more than expected. [ID:nN26467291] Materials advanced 1.6 percent even though the price of gold slipped on a firmer U.S. dollar. [ID:nLQ439432]

The financial group was a burden on the index, falling 1.7 percent, as National Bank of Canada (NA.TO) became the latest bank to issue a profit warning ahead of release of its fourth-quarter results. [ID:nN26340877]

National Bank, which said that asset-backed commercial paper writedowns account for about half of the various charges it will take, fell 2.7 percent to C$39.35.

The committee that has been working for more than a year on a restructuring plan for roughly C$32 billion in Canadian nonbank-issued asset backed commercial paper reported another delay this week, saying the plan would not be implemented this month as hoped. [ID:nN25271027]

Economic news also weighed on overall mood. While there were no Canadian data to digest, figures on U.S. durable goods orders and jobless claims implied a steep downturn was at hand. [ID:nN26338126]

World stocks struggled as investors weighed stimulus packages from the European Union the day after the U.S. Federal Reserve announced its aid plans. China cut its interest rates by 108 basis points. Toyota had its top-notch credit ratings cut for the first time in a decade. [MKTS/GLOB]

$1=$1.24 Canadian Reporting by Ka Yan Ng; editing by Peter Galloway

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