As the federal government prepares to spend vast amounts of dollars on infrastructure projects to assist 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 the large portion of that money goes towards public-private partnerships (P3s).
“Capital financial markets are a very important component of the infrastructure finance market here in Canada and that 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 would be a record year for P3 bond issuances in Canada, in terms of the number of transactions and also the total capital markets volume, with 21 deals closing.
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Canadian capital markets’ involvement in P3 financings became popular after the financial crisis when European banks, the standard financiers for such projects, delivered the map. This opened the door for Canadian banks, which adopted a hybrid model that has a tendency to include a tranche of short-term bank debt together with one or more tranches of long-term bonds which cover the life span of the asset.
These bonds happen to be 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, md and head of TD’s customized solutions group.
“It provides them the long duration they’re looking for inside 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.
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In total, there are 237 P3 projects across the nation, according to Mark Romoff, CEO of the Canadian Council for Public-Private Partnerships.
The value of those projects that have been completed or they are under construction is $93 billion, and it’s estimated they generate 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 experienced no trouble finding investors for these projects, based on Laith Qamheiah, a director at BMO Capital Markets’ infrastructure group.
“Year after year, more people started watching it, accumulating 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 evolved to include from concert halls to riding on the bus to composting facilities. This growing number of assets helps spur investor interest.
“The types of projects that we are seeing arrived at market are increasingly diverse when it comes to asset classes and credit quality, therefore it is a much more dynamic and robust area of the market,” said Richard Sibthorpe, head of BMO’s global debt capital markets group.
That marketplace is only expected to grow when Ottawa elaborates on its spending plans in the next federal budget.
Financial Post
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