Banks are so eager to get a piece of Hydro One Inc.'s initial public offering that they're willing to accept about a quarter of the fees typically paid out in such deals, Ontario's finance minister says.

Demand by banks to handle the IPO, one of the largest ever in Canada, leaves the province in a position to ask for a discount, Charles Sousa said.

"They're not going to get the same type of fees that have been accommodated in the past," Sousa said in an interview at Bloomberg's headquarters in New York. "I'd say it's about 25 per cent of what they've earned, say with the Air Canada IPO, or CN, or some of the other majors that have come."

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The banks are "hungry for business and it's a competitive environment, and right now, the way the deal is set up, it's not going to be a complicated one."

Fees paid to investment banks handling Air Canada's original $246-million IPO in 1988, and Petro-Canada's $546-million IPO in 1991, totalled 5 per cent of the sale. Canadian National Railway Co.'s $2.06-billion 1995 IPO included fees of 3.75 per cent. The dollar amounts exclude options offered to the banks after the IPOs closed.

Ontario plans to sell a 15 per cent stake in the utility for as much as $2.25-billion, in what would be one of Canada's biggest IPOs and the largest since Manulife Financial Corp.'s $2.49-billion initial sale in 1999. A 5 per cent fee for Hydro One could exceed $110-million in such a case. If Sousa secures the rate he's looking for – 25 per cent of fees on the Air Canada and CN offerings – the deal could pay fees from $21-million to C$28-million.

GM IPO

Fees paid to banks for managing the $15.8-billion (U.S.) IPO of General Motors Co. in November 2010 were 0.75 per cent, according to data compiled by Bloomberg. The sale reduced the U.S. government to a minority shareholder and came 16 months after the car maker emerged from bankruptcy.

Sousa's comments follow those of Ed Clark, the former Toronto-Dominion Bank chief executive officer who led a group that's reviewing Ontario's assets. The province is trying to squeeze more value from its holdings and find ways to pay for new infrastructure.

Clark said last month the Hydro One IPO will include "a fee structure that the industry has never seen before" and that "there's not going to be a lot of money made off this."

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Sousa has said the province hopes to sell the first 15 per cent stake by September. Ontario will ultimately sell as much as 60 per cent of Hydro One in the next four or five years, Premier Kathleen Wynne said April 16. Hydro One is estimated by the province to have an equity valuation of $13.5-billion (Canadian) to $15-billion.

Ontario's government invited Goldman Sachs Group Inc., Barclays Plc and Canada's six biggest banks to pitch for a role in arranging the IPO, according to people familiar with the process. The utility is Ontario's largest electricity transmission and distribution system, with about 1.4 million customers and $22.6-billion of assets.

Spokesmen for the banks invited to participate declined to comment.