Trudeau woos investors with C$35b infrastructure bank

[OTTOWA] Prime Minister Justin Trudeau's government is creating an infrastructure bank backed by billions in new spending to lure investment from global fund giants such as BlackRock Inc and breathe new life into Canada's stagnant economy.

In a fiscal update Tuesday, Finance Minister Bill Morneau unveiled C$81.2 billion (S$84.69 billion) in new infrastructure spending over the coming 12 years, including C$8.9 billion before the next scheduled election in 2019. The government will establish a Canada Infrastructure Bank in 2017 mandated to invest C$35 billion.

The changes - structural and long-term, rather than a short-term stimulus effort - come as Canada revises downward gross-domestic-product projections and predicts no immediate return to budgetary balance. The government expects deficits totaling about C$130 billion over seven years.

Mr Trudeau is, in essence, adding new spending and further opening Canada's borders to investment as protectionist sentiment threatens global trade.

The infrastructure bank will seek to leverage global pension fund assets to speed up projects, while Canada creates a foreign-direct investment hub, and loosens both FDI regulations and immigration rules.

"Today is about the long term," Mr Morneau told reporters Tuesday before speaking in the House of Commons.

"We're going to continue to be fiscally prudent, we're going to continue to focus on how to get investments for our economy."

Mr rTrudeau campaigned last year on adding C$60 billion in new infrastructure spending over the coming decade. The plan outlined Tuesday raises his projected spending to C$95 billion over 12 years, including C$14.4 billion announced in the government's debut budget this year.

Mr Morneau has said his "fiscal anchor" is the country's debt-to-GDP ratio, which is now forecast to peak at 31.9 per cent in 2018-2019 before falling to 30.4 per cent by 2021-2022. But he faced immediate criticism for not laying out a return to balance.

"It's unhelpful for the federal government to have demonstrated yet again with this update that they don't have any particular commitment to a bottom line," said William Robson, president of the C.D. Howe Institute, a nonpartisan think-tank.

The federal debt load doesn't tell the full story of Canada's fiscal outlook, which is complicated by pension liabilities, an aging population and mounting debt among provinces, he said.

"I've seen how these things can run out of control when you don't have any commitment to getting to budget balance."

For the C$35 billion infrastructure bank, Canada will allocate C$15 billion of its new infrastructure program to cover any losses or direct funding arrangements. The remaining C$20 billion is expected to be used to invest in equity or debt holdings that won't count against the government's spending.

The bank will be mandated to invest in revenue-generating projects - particularly those that spur overall growth - and use "innovating financial tools" including direct investments, debt and equity investments. The bank will deliver government projects while also accepting unsolicited bids.

An advisory board led by McKinsey & Co's Dominic Barton had recommended the creation of an infrastructure bank in a report last month, and Mr Trudeau campaigned on creating one in last year's election campaign.

Mr Barton's group envisioned the bank would include C$40 billion in government funding that would attract US$4 of private investment for every US$1 from government, for a total of C$200 billion in project funding. Tuesday's plan proposes C$35 billion in government funding and uses the same private investment ratio, suggesting an anticipated C$175 billion portfolio managed by the bank. The precise figure will depend on market interest and individual deals.

Canada Pension Plan Investment Board, the country's largest pension fund, would consider investing in the infrastructure plan if the returns were right, chief executive officer Mark Machin said in an interview.

Typically, the fund looks for infrastructure investments of at least C$500 million, and there has been a dearth of those in Canada, he said.

"Everywhere we look in the world where people are looking to get into infrastructure investment, the No 1 issues is pipeline - a dependable pipeline.

Unless there's a dependable pipeline of scale opportunities people can't devote the resources," Mr Machin said.

Mr Morneau committed Tuesday to quickly identifying a pipeline of projects.

The infrastructure bank "will significantly improve the Canadian infrastructure landscape" and open the door for productivity gains, according to Ron Mock, president of the Ontario Teachers' Pension Plan, Canada's third-largest fund. Mock called for a "strong, professional and independent board" to lead the new bank.

Mr Trudeau, whose Liberals defeated former Prime Minister Stephen Harper's Conservatives last October, has spent much of his time in office wooing foreign investment.

He has rubbed shoulders with global investors from Davos, Switzerland, to Sun Valley in the US and Ontario's cottage country. The government will get its first chance to sell the idea to institutional investors on Nov 14, when Mr Morneau and Mr Trudeau are set to meet with potential investors at a conference organised by BlackRock.

In that vein, Canada will raise the threshold for government review of foreign takeovers to C$1 billion by 2017, two years earlier than previously predicted. The government committed to publishing new guidelines for national security reviews of foreign investment by the end of this year.

Morneau signaled clearly a desire to expand foreign investment in Canada. "I'm going to be out selling Canada around the world," he said.

Canada also announced a Global Skills Strategy that would speed up visa processing times and look to support companies "that need to access global talent" and create a short-term work permit for jobs lasting no more than 30 days per year.

BLOOMBERG