Bloomberg Canadian Finance Conference
November 29, 2023
Each year, ministers, regulators and CEOs join the Canadian Finance Conference to share their visions, expert analysis and future plans. The event covers wide-ranging and timely topics of advancements in their fields and how they are sustaining their leadership going forward.
- Rod Balkwill, Executive Director, Treasury Management Branch, Government of Saskatchewan
- Romy Bowers, CEO, Canada Mortgage and Housing Corporation (CMHC)
- Tom Clark, Consul General of Canada in New York
- Mike Crawley, CEO, Northland Power
- Christine Dacre, Chief Financial Officer, TransLink
- Filipe Da Silva, Chief Financial Officer, Alimentation Couche-Tard
- Patrick Decostre, CEO, Boralex
- Andrea Dore, Head of Funding, Capital Markets and Investments, Treasury, The World Bank
- Pierre Fitzgibbon, Minister of Economy, Innovation and Energy, Quebec
- Ed Hankins, Director, Treasury Office & Deputy Treasurer, The Region Municipality of York
- Martine Hébert, General Delegate in New York, Government of Quebec
- Jim Hopkins, Assistant Deputy Minister of Provincial Treasury, British Columbia
- Zauresh Kezheneva, Funding Officer, International Finance Corporation (IFC)
- John Kousinioris, President & CEO, TransAlta
- Tamara Lawson, Chief Financial Officer, QuadReal
- Eugene Lei, Chief Financial Officer, Hudbay Minerals
- Stuart MacDonald, CEO, Taseko Mines
- Stéfane Marion, Chief Economist & Strategist, National Bank of Canada
- Cashel Meagher, President & Chief Operating Officer, Capstone Copper Corp
- Teresa Neto, Chief Financial Officer, Granite REIT
- Nicoleta Oprea, Director, Capital Markets, Province of Manitoba
- Stephen Thompson, Executive Director, Capital Markets – Treasury Board and Finance, Government of Alberta
- Peter Urbanc, CEO, Municipal Finance Authority, British Columbia
- Elizabeth Wallace, Senior Manager, Funding and Foreign Exchange, Ontario Financing Authority (OFA)
- Ari Altstedter, Reporter, Real Estate Americas, Bloomberg
- Danielle Bochove, Toronto Bureau Chief, Bloomberg
- Derek DeCloet, Managing Editor, Canada, Bloomberg
- Mathieu Dion, Montreal Bureau Chief, Bloomberg
- Christine Dobby, Canadian Finance Reporter, Bloomberg
- Caroline Gage, Head of the Americas, Bloomberg News
- Kevin Orland, Calgary Bureau Chief/Energy Reporter, Bloomberg
- Paula Sambo, Credit Reporter, Bloomberg
The support Canada and the U.S. provide each other has helped both mark the strongest pandemic recoveries in the G7, according to Tom Clark, Consul General of Canada in New York. Canada imports almost as many goods from its neighbor than from China, Japan and Germany, combined. The U.S. is its single, biggest investor, pouring in $406 billion in equity in 2021. “You’ve got skin in the game, to say the least.” At the same time, Canada is the third largest source of cumulative foreign investment in the U.S. This has helped both nations weather rising interest rates, higher cost of business capital and consumer financing driven by recent conflicts around the world. “Despite these challenges, I think the story coming out of Canada is pretty encouraging. The GDP is now 3.4% larger than before the pandemic.”
“In the time that it has taken me to give this speech, almost $200 million in goods and services has flowed across the border between Canada and the United States. It’s an incredible relationship.”
Keynote Interview: Pierre Fitzgibbon, Minister of Economy, Innovation and Energy, Quebec
The most pressing question for Pierre Fitzgibbon, Minister of Economy, Innovation and Energy, Quebec was how the government plans to fund $100 billion by 2025 for power generation and transmission expansion. He spoke to that and sourcing 90% of energy from green sources.
Quebec has the highest taxes in North America. Fitzgibbon pointed out a 1% reduction that’s already been applied, and the bigger picture of the cost of living, different tax levels on the consumer side and social services. “We are cognizant that this is a pressure cooker on Quebecers compared to the rest of Canada, but we don’t want to increase our debt. There’s a matrix that we have to maneuver.” That includes remaining attractive to corporations, like Swedish EV battery manufacturer Northvolt AB, which is building a $7 billion factory, the first of its kind in Quebec. The demand for raw materials will boost mining there. The result will be a new industry for the nation within a tight supply chain.
The Economic Outlook
Historically, one home was available in Canada for every 1.8 people coming of working age. The current imbalance puts that at 4.2 people, said Stéfane Marion, Chief Economist & Strategist, National Bank of Canada. All the while, the population is surging. He referred to Clark’s comments about the federal government’s plan to invite 500,000 permanent immigrants, noting that along with international students, refugees and temporary workers, it increases the number of noncitizens to one million, in an economy that does not have the capacity. “We need to recalibrate on the demand side and accommodate supply.” The problem, and the answer, lie in the fact that 68% of the country’s GDP is driven by only five areas, which is where the migrating, skilled workforce will settle. “So, the issue that we have right now is that we’re trying to find a recipe for the entire country. I think we need to focus on the five biggest metropolitan areas – Toronto, Vancouver, Montreal, Edmonton and Calgary – and find a solution that is custom made for them.”
Keynote Speaker: Romy Bowers, CEO, Canada Mortgage and Housing Corporation (CMHC)
Labor and materials shortages and zoning regulations are constraints that Romy Bowers, CEO, Canada Mortgage and Housing Corporation (CMHC) agreed could make a government goal to double the pace of housing starts by 2030 overly ambitious. The challenge of balancing the housing market is huge, with a current estimate of a two million unit shortage. “If things go as they are, in terms of housing production, we think that number will increase to 3.5 million by 2030.” No one thing will address the problem, she said. But a start would be to establish a new way of building; an industrial strategy. A pace of 200,000 new homes across the country annually dates back to 1970, “So, we need to really think about innovation in the housing construction sector to boost supply and create homes of all types, specifically rentals and starter homes.”
It will take all levels of government working together on tax policies, incentives for municipalities to reform planning processes and a rejuvenated workforce. “One of the things that prevents housing from being built in Canada is lack of skilled labor and an aging workforce in the construction trades. I was very glad to see the recent immigration policy announcement that there is a specific focus on attracting skilled labor to Canada. We may think it’s immigration causing the housing demand, but it can also be part of the solution.”
Panel Discussion: The Impact of Interest Rates on Funding Strategy
Dealing with diversification means finding funding success both within and outside of Canada, said Jim Hopkins, Assistant Deputy Minister of Provincial Treasury, British Columbia. “This year, the province has done about 10 billion. We borrowed 65%. It’s been done in either Euro format or dollar deals. So, it has been busy for BC.” They are drawn into those markets by competitive economics, so they don’t set targets. “But this year, economics were kind to the province.” It also took a nimble capital markets team that took the initiative to seize on good economics, “Because as quickly as they appear, they could also disappear. So, that’s a big part of that strategy.”
On funding strategies, Stephen Thompson, Executive Director, Capital Markets – Treasury Board and Finance, Government of Alberta spoke to Ontario setting a benchmark, adding that it’s about effectively timing the market, and having the opportunity that less pressure allows. “The liquidity in Canadian provincial bonds is unparalleled in the bond universe. Debt trading is in a very tight spread across all of the provinces, maybe not as much in the smaller ones, but the debt trades incredibly well, and that’s all based on the foundation that Ontario built.”
Elizabeth Wallace, Senior Manager, Funding & Foreign Exchange, Ontario Financing Authority (OFA) talked about doing some foreign issuance this year and a video on their website where their CEO “very clearly pointed to international markets as somewhere we’ve been looking to go for funding.” That said, since their fall economic statement came out, they have funded $7 billion in the Canadian domestic market. “When we need to go and get money we can be very quick about it and it’s very cost effective for us in Canadian dollars.” That becomes the benchmark when they consider foreign markets. Arbitrage is not often on the table, especially with currencies like euros or U.S. dollars. Loyalty also factors in. “When you go to a foreign market and you’re willing to pay up quite a few basis points to investors that aren’t your bread and butter investor group, you want to think about how often you’re doing that, and what the opinions of those investors in the Canadian domestic market are when they see you willing to do that for an investor who’s not walking side by side with you, day in and day out.
Panel Discussion: Navigating the Geopolitical Currents
What about short-term interest rates, which are starting to drop? Rod Balkwill, Executive Director, Treasury Management Branch, Government of Saskatchewan said it’s tempting to go further out on the curve, but dangerous for a major borrower to make a call like that, and a consensus isn’t always correct. It’s best to balance things off. In the margins, stories could be built for borrowing in the 3-to-5-year sector from both an issuer or an investor perspective to buy bonds in that part of the curve, “because you know you may see the most improvement if there are those cuts that happen.”
Generally, they build a plan, mostly stick to it. In the last two years, investors have been more vocal about what they need when it comes to term to maturity and other features. “A fair way of saying it is we don’t want to make too huge a call on where rates are going, but stick to something that’s balanced and diversified.”
Nicoleta Oprea, Director, Capital Markets, Province of Manitoba said their debt management strategy focuses on building just liquidity in the domestic market, with a focus that has been on building benchmark sizes in the 10- and 30-year part of the curve. “I think that has served our program really well in this environment of higher volatility because what we’re seeing and what we’re hearing is that investors are looking to invest in more liquid names.” Their strategy also focuses now on minimizing borrowing costs by accessing international markets. Manitoba has set up a U.S. dollar program registered with the SEC, as well as a European medium terminal program and an Australian program. “We’ve done, in some years, as much as 40% of our borrowing in international markets and we always look for opportunities to access them. This past July, we were in the U.S. market and we were able to issue a 10 year, $1 billion global debenture. Our goal is to be in the U.S. market once a year.”
Panel Discussion: Challenges and Opportunities in the Local Government Sector
In the metro Vancouver area, transit is vital to offset the lack of an extensive road network. Christine Dacre, Chief Financial Officer, TransLink spoke about being boxed in with the ocean, mountain and U.S. border, making efficient people and goods movement extremely important for their economy. When it comes to moving people, the system is bouncing back well from pandemic impacts. “Like every transit agency in the world, we suffered from lack of ridership.” They are now at 85 to 90% of pre-COVID-19 levels. “We consider it our new normal. Organizations not going back to work five days a week has really impacted the travel patterns of our customers. We don’t have the high peak times that we used to and we have off-peak increases.” At the same time, some regions are experiencing volume well above prior levels.
Dacre also spoke about a major expansion of the SkyTrain line and their “access for everyone” plan that has gotten approval from mayors in 21 municipalities.
Ed Hankins, Director, Treasury Office & Deputy Treasurer, The Region Municipality of York, offered a concise look at the differences between municipal finances in Canada and the U.S., and how they might impact credit ratings. “A very strong regulatory regime in Canada, that mostly comes through the provinces, limits what we can do, and provides a lot of investor safeguards.” A major difference is that U.S. municipalities tend to issue tax-exempt bonds while Canadian cities and towns are more like corporates, issuing fully taxable bonds that are more like bullet bonds in larger places, and are predominately sold institutionally. In terms of credit, things are very different. Most large municipalities north of the border have AA or AAA ratings, which Hankins credits to the stability of their revenue sources. “We don’t do things like sales tax, and property taxes tend to be very stable because we don’t have fixed mill rates.” And, municipalities in Canada cannot go bankrupt.
Peter Urbanc, CEO at Municipal Finance Authority of British Columbia noted that there is a much smaller municipal bond market in Canada in terms of the amount outstanding. “That’s because we issue really general obligation bonds. You can borrow from local governments and regions, hospitals issue a lot of revenue bonds in the States and it’s a huge market. It’s a $4 trillion market versus roughly a $50 billion market in Canada.” There are three different ways municipalities access the markets in Canada; through a pool, such as the municipal finance authority in British Columbia where they’re borrowing directly through an infrastructure bank. It’s how, for example, the Region of York or TransLink or the City of Toronto would issue directly to the market. In some cases, the province issues, and then they lend to the local government.
Conversation with a Supernational Issuer in the Maple Market
Zauresh Kezheneva, Funding Officer, International Finance Corporation (IFC), described how they fight poverty and promote prosperity by investing in sustainable business and emerging markets to create growth in member countries. “We provide loans, we make equity investments of capital to bring alongside us into businesses and emerging markets. As the lender and an investor, we have observed that during these tough macroeconomic situations our client companies do face tighter financing conditions, they face inflation, so there are definitely headwinds.” But they’ve always acted as a countercyclical investor, so demand for IFC financing tends to rise during tighter macroeconomic conditions. “The numbers speak for themselves. In financial year 2023, we were able to provide record financing to our clients in long-term funding and $44 billion in new investment commitments, a 30% increase versus the previous year.” She added that their shareholders now expect them to step in to help countries facing such conditions.
Panel Discussion: The Race to Net Zero
What should the government be doing to speed up the net-zero transition? Patrick Decostre, CEO, Boralex, called for volume predictability and recurrence. “We come from a period when we were all chasing niche, but the situation everywhere today is that transition needs to be done. We don’t need the big tender next year for 6,000 megawatts in Quebec. We probably need four 1.5 gigawatt tender for the next five years.” Predictability enables preparation for investment and ensures they can compete to get the best price. Governments halting investing, not doing those three things is common, he said, pointing to Canada in 2018, and in France and the UK.
For Mike Crawley, CEO, Northland Power, the big story is what governments should be doing to support the net-zero transition within the energy sector, specifically in off-shore wind, where buyers are few. “What you’ve seen in the last three months is prices really moving up to adjust to the cost of capital.” In the UK, the ceiling price on the next round of options was adjusted by 40%. In other areas, as well, prices are adjusting to the cost to finance and build. He looked back at a 20-year history of renewables, starting with big tariffs and high FIT contracts to attract capital. From 2010 to 2015, as risk dropped, those contracts resulted in good returns. That and the volatility of the last few years all came to a “screeching halt” at the beginning of 2023. “There’s been a correction, and we’re starting to see it take hold. Going forward, it seems clear that there’s going to be a lot of capacity that needs to get built out.”
John Kousinioris, President & CEO, TransAlta offered the perspective from Alberta, which has one of the more carbon-heavy grids in the country, saying, “I think you can underestimate the challenge of the transition.” He used the analogy of a 3-legged stool, with decarbonation getting the spotlight while affordability and reliability need just as much attention. “I can tell you that is very much a topic line in our jurisdiction, and frankly, I see it in all three jurisdictions in which we operate, certainly the U.S. and Australia. People are worried about it. And if you’re in a province like ours, and it’s February and it’s minus 20, there’s no wind and only five hours of sunlight, how are you going to back up the system?” He described the government as being laissez-faire until now. “I think now that those kinds of renewables are coming in in volume, as they should, in an appropriate way, it requires it to be managed.”
Crawley jumped in and the two engaged in an enlightening conversation on system planning and supply chain management. He noted that in Europe, governments are actually incentivizing supply chain investments. Kousinioris agreed with his assessment that governments should not be talking anymore about targets and ambitious plans to procure lots of renewable energy.
Panel Discussion: How to Build a Mine, and Everything that Goes With It
Stuart Macdonald, CEO, Taseko Mines, remarked on impacts within the mining ecosystem after the shutdown of the Cobre Panama copper mine, valued at $10 billion, after its contract was declared unconstitutional. “It really underscores the risk that you have around developing mines in the world today. A lot of copper deposits are located in some risky jurisdictions. Investors see these situations, like what’s happening this week in Panama, and they price that into their returns when they’re making investment decisions. It’s going to make capital more expensive for the rest of us.”
If equity and younger investors lose interest in the sector, where is the money going to come from? The industry is focused on that big challenge. “It’s a capital-intensive business. We’ve been able to partner where appropriate, such at our Gibraltar mine, with a Japanese consortium; not investors, but actually smelters and end users.” At their Florence project, they attracted a Japanese company as a trader. It’s critical, he said, to secure supply going forward.
Cashel Meagher, President & Chief Operating Officer, Capstone Copper Corp, would not be surprised to know that young investors have soured to the mining industry, based on what they are familiar with or hear in the news, but there is a reality check coming. “I think one of the new developments we’re seeing is the connection to the EV world. That connection to the greening of the environment will eventually have to be made. That’s done through raw materials. There’s not enough recycling, so it’s going to be consumed and we’re going to have to do that from the primary source, which is mining or extracting metals.” How soon it will happen is hard to say, but the narrative will change as people come to understand mining is part of the solution.
The industry has already come a long way from some poor practices of the past. “It’s certainly come a long way in environmental protection, and so the standards that are there now are very robust. Adherence to those standards and to that social license is key now for our younger generation to participate and understand that this is an honorable industry and it’s required for what they want in life.”
Building on that, Eugene Lei, Chief Financial Officer, Hudbay Minerals, said there is an opportunity to change the lexicon on critical minerals and for young people to understand critical materials and how they help us. “It’s moved beyond mining and just extractive. We need these critical materials for decarbonization, for the economy, and for the electrification that we want for the future. So, I think that the changing lexicon allows people to take another hard look at this industry and say, “We can invest in this industry. It can be a clean industry if done properly with the right standards and, we need it to move from the fossil fuel burning world to one that creates less greenhouse gases.” It’s an intensive industry that’s cyclical and requires a lot of advance funding. “The toughest part is the upfront capital that’s needed for very long periods of permitting and feasibility, and decades of exploration and construction before we can get returns.”
The Canadian Real Estate Market
Commercial real estate was hot during the pandemic, particularly for goods distribution centers for online shopping, but what’s happening now? That’s Granite REIT’s specially, and Teresa Neto, Chief Financial Officer, said it’s become a very cautious environment. “Since interest rates started moving up, in mid- June 2022, that’s really impacted transaction volumes in investment in Canadian real estate, despite the strong demand.” Much of it is tied in with pricing uncertainty and immigration’s demand for multi-family housing and supply chains for a growing population. “Nobody wants to transact. Prices are down to less than half of what they were during the pandemic, and no one can even agree on price. I heard a good phrase, ‘It’s the year of the staring contest.’ Buyers are needing to sell assets, or their funds are performing poorly, so everyone is just holding on. Speaking for ourselves, we have been pencils down since the summer of 2022.”
The Canadian real estate market in the next six to 12 months will be interesting, according to Tamara Lawson, Chief Financial Officer, QuadReal. Much will depend on when interest rates start to fall. “We feel like they’re stabilized for now, and they could start coming down within the next six months. That’s when people will start to jump in. I have never seen a period like this in real estate, where people stayed on the sidelines, just waiting.” QuadReal has money to deploy, waiting for opportunities, and also looking at its portfolio of senior housing and on the debt side. “We’re placing debt on real estate properties because we think with interest rates as high as they’re at, we can get almost equity like returns on the debt side of things” Local buyers are easily found for the popular multi-family asset class. “We continue to recycle capital and look for buying opportunities. We think we’ll see some in the next 12 months.”
Keynote Speaker: Filipe Da Silva, Chief Financial Officer, Alimentation Couche-Tard
Filipe Da Silva, Chief Financial Officer, Alimentation Couche-Tard talked about four-pillar strategy and the robust foundation that will take them from a current $6 billion to a $10 billion EBITDA target by the end of Fiscal 2028. A new, 5-year plan is centered around the goal of becoming the most trusted brand for mobility and convenience. The first pillar is about “winning the offer,” which includes continuing to transform the attractiveness of their stores with initiatives like enhancing food offerings and expansion of their private brand. A major focus will be on opportunities in fuel, and leveraging what they have achieved in Europe to tap into the potential in the U.S. Cultivating integration on the supply chain side includes owning terminals in Europe and a partnership in the U.S.
Winning the customer is about building relationships and a customized experience for all customers. “We recently launched our membership program in the U.S. We already have more than eight million members and we are very pleased by those first results. We believe that during the next five years there’s a huge potential for us to continue to have this specialized experience, customizing the offer and to be there when the customer needs us.”
Keynote Speaker: Andrea Dore, World Bank – Investing in Impact
Investing for positive impact, and following through on enforcement was defined by Andrea Dore, Head of Funding, Capital Markets and Investments, Treasury, The World Bank. “It’s in the DNA of the institution. It’s a social institution.” With a AAA rating for 70 years, investors are assured of a solid, liquid asset and good returns that include doing good. Enforcement comes through screening every project for both social and environmental standards. “We’re able to work with our member countries to reach agreements in terms of their own internal priorities.” Over the last decade, IDA funding has provided access to essential healthcare to a billion people globally, access to clean water for over 140 million and training for 14 million teachers.
The current, volatile investment market presents challenges, especially when it comes to trying to deploy into emerging markets. “But, every time there are challenges, there are always opportunities.”
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