Canadian capital markets expect P3 financing windfall from Ottawa’s stimulus spending

Date: 26 Jan 2017

As the federal government prepares to spend billions of dollars on infrastructure projects to help stimulate the floundering economy, Canadian capital markets are expecting a corresponding bonanza in financing opportunities for public-private partnerships.

During the election, the Liberals committed to spending $125 billion on infrastructure during the next decade. It’s assumed that a large portion of that money will go towards public-private partnerships (P3s).

“Capital markets are a very important component of the infrastructure finance market here in Canada and I would say maybe even more so than anywhere else in the world,” said Vickie Turnbull, managing director and co-head of RBC Capital Markets’ infrastructure finance group.

According to Michael Wolff at TD Securities, 2015 was a record year for P3 bond issuances in Canada, both in terms of the number of transactions and the total capital markets volume, with 21 deals closing.

Canadian capital markets’ involvement in P3 financings took off after the financial crisis when European banks, the traditional financiers for such projects, dropped off the map. This opened the door for Canadian banks, which adopted a hybrid model that tends to include a tranche of short-term bank debt together with one or more tranches of long-term bonds that cover the life of the asset.

These bonds have been snapped up by “a broad range of domestic and international institutional investors seeking portfolio diversification and long-term investments that match the duration of long-term liabilities,” said Wolff, managing director and head of TD’s customized solutions group.

“It gives them the long duration they’re looking for in a strong and steady asset class that they don’t normally get in typical corporate bonds,” agreed Sekhar Angepat, who co-manages RBC’s infrastructure finance group with Turnbull.

In total, there are 237 P3 projects across the country, according to Mark Romoff, CEO of the Canadian Council for Public-Private Partnerships.

The value of those projects that have been completed or are under construction is $93 billion, and it’s estimated they’ve created more than 290,000 direct jobs and contributed more than $25 billion to Canada’s GDP.

So far, Canada’s capital markets have had no trouble finding investors for these projects, according to Laith Qamheiah, a director at BMO Capital Markets’ infrastructure group.

“Year after year, more people started paying attention to it, building up their teams to be able to analyze these investments and the appetite has just grown from there,” Qamheiah said.

Since the early days, when P3s were largely done for social infrastructure like hospitals, the market has evolved to include everything from concert halls to public transit to composting facilities. This growing variety of assets has helped spur investor interest.

“The types of projects that we’re seeing come to market are increasingly diverse in terms of asset classes and credit quality, so it’s a much more dynamic and robust part of the market,” said Richard Sibthorpe, head of BMO’s global debt capital markets group.

That market is only expected to grow when Ottawa elaborates on its spending plans in the next federal budget.


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