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As the us government prepares to invest vast amounts 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 dedicated to spending $125 billion on infrastructure during the next decade. It’s assumed that the large part of those funds goes towards public-private partnerships (P3s).
“Capital financial markets are a very important element of the infrastructure finance market within Canada and that i would say possibly even much more than elsewhere in the world,” said Vickie Turnbull, md 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 the number of transactions and the total capital markets volume, with 21 deals closing.
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Canadian capital markets’ involvement in P3 financings took off following the financial crisis when European banks, the standard 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 along with one or more tranches of long-term bonds that cover the life span of the asset.
These bonds have been purchased by “a wide 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 inside a strong and steady asset class that they don’t normally enter typical corporate bonds,” agreed Sekhar Angepat, who co-manages RBC’s infrastructure finance group with Turnbull.
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In total, you will find 237 P3 projects across the nation, based on Mark Romoff, CEO of the Canadian Council for Public-Private Partnerships.
The worth of those projects which have been completed or they are under construction is $93 billion, and it’s estimated they’ve created a lot more than 290,000 direct jobs and contributed a lot more than $25 billion to Canada’s GDP.
So far, Canada’s capital markets have had little difficulty finding investors of these projects, according to Laith Qamheiah, a director at BMO Capital Markets’ infrastructure group.
“Year after year, more people started watching it, building up their teams so that you can analyze these investments and the appetite just grown from there,” Qamheiah said.
Since the early days, when P3s were largely done for social infrastructure like hospitals, the marketplace has changed to include everything from concert halls to public transit to composting facilities. This growing variety of assets helps spur investor interest.
“The types of projects that we are seeing come to market are increasingly diverse in terms of asset classes and credit quality, so it’s an infinitely more dynamic and powerful part of the market,” said Richard Sibthorpe, head of BMO’s global debt capital markets group.
That market is only likely to grow when Ottawa elaborates on its spending plans within the next federal budget.
Financial Post
kowram@nationalpost.com
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