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Quebec Joins Stampede by Canadian Provinces Into Kangaroo Bonds

Quebec added to a swathe of Canadian provinces borrowing in Australia, joining Manitoba, Ontario and British Columbia in raising funds in the Kangaroo bond market over the past month.

Canada’s largest province by area sold A$100 million ($94 million) of 4.2 percent Kangaroo notes due in March 2025 at a yield 87.5 basis points above Australian federal government securities, according to an e-mailed statement from Toronto-Dominion Bank’s TD Securities unit, which managed the sale along with Royal Bank of Canada’s capital markets unit.

The Kangaroo bond market attracts issuers from around the world including commercial banks and highly-rated borrowers such as development lenders and provincial governments. Issuers from Germany’s KFW to the European Investment Bank and Kommunalbanken AS are among those that have taken advantage of buyers’ appetite for longer-dated paper this year.

“There’s been good, ongoing demand for high-quality bonds around the 10-year part of the curve and investors have been looking at some of the less frequent issuers like the Canadian provinces,” Tom Irving, the Singapore-based head of TD Securities’ Asian debt syndicate, said today by phone. “The provinces are looking to diversify their funding bases outside their home market and they often like the longer-term market, so it works on both sides.”

Manitoba, Ontario

Manitoba last week priced A$100 million of March 2025 notes to yield 71 basis points more than Australian federal government debt, while Ontario issued A$225 million of August 2024 securities earlier in the month at a 90.75-basis-point spread. British Columbia on July 31 increased the size of its of April 2024 securities by A$300 million at a yield premium of 67.75 basis points, having issued the bond’s first A$400 million tranche in May. Manitoba also sold A$100 million of 2023 notes earlier in the year.

TD Securities, the top-ranked Kangaroo bond underwriter this year, has been involved with all of the four provinces’ Kangaroo bond transactions this year.

Issuance in the Kangaroo market is affected by both the yields and credit spreads in the Australian market and by the cost of switching funds back to a borrower’s home currency. Both the Australian dollar basis swap and the Canadian basis swap, measures of the cost of moving funds, have been quite steady for some time, so the decision to issue has been more driven by demand than by any particularly attractive pricing, said Irving.

Quebec’s rating of Aa2 at Moody’s Investors Service, the third-highest score, is on par with Ontario and below both Manitoba and top-ranked British Columbia. Quebec’s A+ rating at Standard & Poor’s is below those of the other three provinces that have issued.

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