“The Canadian market has seen continuous development,” says Jigme Shingsar, managing director, US debt capital markets. “It’s become deeper, more liquid especially for offshore issuers who can gain real investor diversification.
“Some of the deal sizes we’ve seen for SSA issuers, C$1bn or more, are larger than what is achievable in other alternative markets such as Australian dollars or even sterling. Over the last two to three years Canadian dollars has become a much more viable alternative for currency diversification.”
RBC led the league tables over the last few years for SSAs in Canadian dollars, and its presence on the ground in Toronto as well as in London has been an important factor in finding opportunities for issuers.
“We have a local syndicate and government finance team on the ground here that is involved in pricing discussions and providing feedback from domestic investors and so on,” says Alex Caridia, head of global public sector markets. “That’s one of the things set us apart from our peers. Having one team to look at all of these aspects, be it domestic or international, is helpful, and not just in Canadian dollars.
The model means that coverage bankers can speak to an issuer across the full spectrum of markets, while calling on local currency experts in each.
RBC continues to rank highly in the domestic business for the provinces and crown corporations which also provides useful intelligence for the international business, says Caridia. “We can take some of the feedback and the learnings from the domestic side and apply that to the Maple market.”
Domestic investors are also increasingly looking at the relative value between Canada Mortgage Bonds (CMBs) and the SSA sector, which has also opened up opportunities. “There’s a lot of overlap and there have been instances when after CMB has issued in the market we’ve been able to convert some of the residual demand into a Maple issue. Being able to do that quickly and seamlessly has been a real advantage,” says Caridia.
Demand from Asia is also growing, while some central banks have been running above their usual allocations to the currency, says Shingsar, while a factor leading domestic investors to the SSA space has been the rise of ESG. “Demand for ESG meshes very well with SSA types of issuer,” he says. “Interest in ESG has increased to the point where supply has not really kept pace and there’s a natural fit for SSAs, many of them being development organisations or having a very strong ESG focus.”
One of the stand-out deals was KfW’s inaugural Canadian dollar green bond in February. The C$1bn five year deal was its first Maple for two years and some 38% of the bonds were bought Canadian investors, underlining the diversification benefits.
“ESG has been extremely helpful in terms of getting domestic investors’ attention. In most of our investor discussions domestic investors have been extremely receptive with great questions and often followed up with very significant investment. There isn’t a client meeting that goes by that we don’t touch on the topic,” says Caridia.
Ontario and Quebec, the two biggest green bond issuers domestically, trade 3bp-5bp tighter in green than non-green, and with liquid curves that comparison is relatively easy to make. For SSAs, the green or social premium is less obvious, but Shingsar says that there’s still a pricing advantage.
“There’s no question that at a minimum, the ESG bid shows up in terms of incremental demand and allows a more fulsome discussion around size versus price,” he notes.
It’s not just public benchmarks or green bonds where SSAs are finding Canadian homes for ESG paper. World Bank and Asian Development Bank, for instance, have both issued smaller private placements under their gender bonds initiatives.
“Until this year, the conversation was very much focused on climate, but now we’re talking much more around social, such as gender bonds or social housing bonds. There’s much more breadth to the discussion than there was,” adds Caridia.