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On the heels of a red-hot debt deal, Canada’s green-bond market waits for more

Export Development Canada (EDC), a federal Crown corporation that lends money to exporters, raised $500-million last week earmarked for companies that promise to help the environment. The deal, which is the first time EDC has tapped Canada’s credit market in a decade and its first-ever Canadian green bond.

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Canada's nascent market for green bonds is set to heat up after an offering in late August showed just how much demand there is for this kind of debt.

Export Development Canada (EDC), a federal Crown corporation that lends money to exporters, raised $500-million last week earmarked for companies that promise to help the environment. The deal, which is the first time EDC has tapped Canada's credit market in a decade and its first-ever Canadian green bond, drew nearly three times as many orders as there were securities for sale.

While there has been a boom in green bonds globally, the market is still tiny in Canada. EDC and the bankers who brought the deal to the market say its success will spur more green bond offerings from both the public and private sectors to help finance assets such as wind and solar projects, energy-efficient buildings and public transit.

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"There's more demand than there is supply. I think this bond shows that," said Nancy Kyte, a senior portfolio manager at EDC.

Just "because people aren't coming and issuing doesn't mean that there isn't a lot of demand out there. The market's perhaps further along than [people] were judging," she added.

EDC has plans to capture that demand by doing more in this space. The credit agency is helping more clean-technology companies do business abroad, fuelled by the support of the Liberal government. The latest federal budget set aside more money for EDC to lend to clean-tech firms and grow its exposure to the budding industry.

"If we're able to build a bigger asset book, I could see us coming to the green market more frequently and with bigger amounts," said Ken Kember, the chief financial officer at EDC.

Its latest sale of green bonds was arranged by underwriters Merrill Lynch, RBC Dominion Securities Inc. and TD Securities Inc.

The bond, which offers a fixed rate of 1.8 per cent and matures in five years, was sold to 54 investors, the bankers said. Pretty much all of them have mandates to invest in green initiatives. Sixty per cent of the buyers were based in Canada, while 29 per cent were in the United States, 7 per cent in Europe, 2 per cent in Asia and another 2 per cent located in the Middle East. More than 60 per cent of the buyers were asset managers.

Investors are devoting more capital to support issuers that promise to be sustainable or ethical. The concept is known as environment, social and governance (ESG) investing. The movement has taken longer to get off the ground in Canada, says Suzanne Buchta, global head of green bonds at Merrill Lynch, and that might be why green bond issuance in Canada is still smaller relative to other places.

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But that's been changing – and EDC's offering last month has breathed new life into a market that has been bubbling under the radar.

"You see more and more investors incorporating ESG metrics into their decision making," said Amy West, head of socially responsible finance at TD. "The success of EDC's green bond really validates the strength and depth of this growing market. The next focus will be encouraging other entities, as the market evolves, to get involved."

Before EDC, the provinces of Ontario and Quebec, the European Investment Bank and TD Bank had issued some of the largest green bonds in the Canadian market.

But EDC and the bankers who worked on its transaction say they have been fielding more calls in the last week from other government and corporate entities that have asking whether they have what it takes to bring a green bond to market.

Some of those considerations include the size of their funding program, their asset mix and whether they have the framework in place internally to issue and track a green bond, says Jamie Hancock, head of Canadian debt capital markets at Merrill Lynch.

A lot of issuers say "they're interested in issuing green but don't have the funding needs to carve out a dedicated green platform," he added. To make it worth their while, issuers should sell at least $500-million worth of green bonds as EDC did.

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"There's not very much green paper that [investors] can buy in Canada," said Alex Caridia, the head of government finance at RBC in Toronto. "Overall, it's growing. What would be nice to see is that growth spill over into the corporates and financials."

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About the Author
Capital Markets Reporter

Christina Pellegrini is a reporter at The Globe and Mail and a regular contributor to Streetwise, covering capital markets, the exchange business and market structure.She writes about the capital markets divisions of BMO, CIBC and National Bank; independent brokerages such as Canaccord Genuity; and the Canadian operations of foreign dealers including JP Morgan, Goldman Sachs, Credit Suisse and Citigroup. More


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