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Export Development Canada Plans Global Offering: Canada Credit

Export Development Canada plans its second global offering of bonds this year as soon as September, as the country’s export-financing agency scales back borrowing.

The lender will sell C$4 billion ($3.84 billion) to C$5 billion in debt this year, down from initial projections of as much as C$7 billion, as the Ottawa-based EDC runs off “excess liquidity,” Treasurer Brian Laffin said in an interview. The agency has issued a little more than C$2.5 billion this year, he said, compared with about C$7 billion in 2009.

“There’s definitely a second global offering coming,” said Laffin. Timing “will depend on where the investors emerge in September,” he said.

Bonds issued by quasi-government borrowers have trailed the broader markets this year, returning 5.35 percent through last week, according to Bank of America Merrill Lynch’s Global Broad Market Quasi-Govt Index that includes EDC. The bank’s Global Broad Market Index of all types of bonds has gained 5.87 percent, including reinvested interest.

“Accessing the markets hasn’t really been problematic this year,” Laffin said. “You still don’t want to force a transaction into the markets when they are not ready for it.”

EDC sold $1 billion of five-year 2.25 percent U.S. dollar bonds in its first global offering this year in May. Bank of America Corp., Citigroup Inc., Deutsche Bank AG and Toronto- Dominion Bank managed the sale. The bond’s yield fell to 1.569 percent on Aug. 13, from 2.314 percent on May 24.

Narrowing Spreads

Elsewhere in credit markets, the extra yield investors demand to own Canadian company debt instead of federal government bonds narrowed 6 basis points last week to 141 basis points, or 1.41 percentage points, according to a Bank of America Merrill Lynch index. The spread is the narrowest since it reached 138 basis points on May 18. Relative yields increased 2 basis points last week to 177 in the broader market for company debt.

Yields on the nation’s corporate bonds ended the week at 3.79 percent. Returns total 1.23 percent this month and 5.92 percent for the year, according to Bank of America Merrill Lynch index data.

The spread on Canada’s provincial bonds widened 1 basis point last week to 60 basis points. The securities have returned 0.76 percent in August and 5.26 percent this year, the data show. The nation’s government bonds have gained 0.73 percent this month and 5.47 percent in 2010.

Canada will sell C$3.5 billion of five-year bonds on Aug. 18, according to a statement on the Bank of Canada’s website.

Kangaroo Bonds

After declining this year, EDC’s debt issuance likely will rebound to C$5 billion and C$7 billion in 2011 and beyond, Laffin said. EDC last month sold A$650 million ($578 million) of five-year kangaroo bonds, or debt issued in Australia in the local currency by offshore entities.

Canada’s export-finance agency built up liquidity to an “elevated level” in recent years to protect it from economic uncertainty, Laffin said. Now EDC is reducing its cushion partly because strong demand for Canadian government debt makes the lender confident it can access markets, he said.

The government-owned agency is a major backer of sales by aircraft-maker Bombardier Inc. and aerospace is the lender’s biggest market. Loans to that sector totaled C$11.6 billion in 2009, according to the agency’s annual report.

Business demand for loans seems to be declining as credit becomes more available, Laffin said. EDC’s business volume this year probably will decline to about C$82 billion to C$83 billion from C$85 billion last year and C$87 billion in 2008, Chief Executive Officer Eric Siegel said in an Aug. 11 interview.

“A small part of that is definitely the full access we’re seeing to capital markets and companies able to refinance themselves,” Laffin said.

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