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Alberta Considering Dim Sum Bonds as Canadians Deepen China Ties

Alberta is looking to become the second Canadian province to sell bonds denominated in Chinese yuan as local governments seek deeper ties to the world’s second largest economy.

“I’ve been trying to do that for the last year and a half,” Doug Horner, the provincial finance minister, said in an interview at Bloomberg headquarters in New York. “The cost is too great at this point in time. We are watching it. We would be in a position to do that.”

British Columbia is the only other province to sell what are known as Dim Sum bonds. Horner said he followed that RMB 2.5 billion ($403 million) sale of one-year notes and has identified yuan issuance, as well as Australian dollar-denominated bonds, as ways to increase the province’s access to foreign investors.

Canadian governments, from the federal to the provincial, are seeking to increase access to China as a market for the nation’s natural resources, including its largest export, crude oil. The majority of Canada’s oil industry is in Alberta, where a lack of access to international markets has caused a price discount on its heavy crude oil that is costing producers as much as C$50 million ($45.9 million) a day in lost revenue, according to the Canadian Chamber of Commerce.

Issuance of Dim Sum bonds surged 97 percent in the first three months of the year from a year earlier as China took steps to increase its currency’s use in international finance, according to Bloomberg Industries.

Currency Conversion

Alberta has held off doing a yuan issue so far because the cost of changing the proceeds back into Canadian dollars has been too high, Horner said.

“Maybe in the future there might be an opportunity for us to do that,” he said. “We’re doing this as a practical measure, as a financial tool. We’re not going to look at this as kind of a something to do in terms of the social license or trade issues.”

China has invested about $37 billion on Canadian energy producers, including Sunshine Oilsands Ltd. (SUO) and Penn West Petroleum Ltd in recent years. Most of those investments involve companies or assets in Alberta. Investments by Chinese firms cooled to about $1 billion last year after a record $19.3 billion in 2012, according to data compiled by Bloomberg.

China is Alberta’s second-largest trading partner after the U.S., with annual exports to the Asian nation averaging about C$3.1 billion between 2008 and 2012.

To contact the reporters on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey

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