Photographer: Simon Dawson/Bloomberg

Quebec Eyes More Foreign Bond Sales as Local Market Gets Crowded

  • Canadian province may sell bonds in U.S. dollars or euros
  • Government sees more investment and exports, 1.6% GDP growth

Quebec may issue more bonds in foreign currencies as the federal government and other provinces crowd the Canadian debt market.

“It’s probably a share of our activity that’s bound to increase in coming years,’’ Finance Minister Carlos Leitao said in an interview in Montreal Thursday. “There’s going to be a lot of Canadian products in the market, so to see what’s going on abroad is never a bad idea.’’

The bonds would most likely be sold in U.S. dollars or euros, according to Leitao. Canada’s second-largest province has also offered debt in Australian dollars before, he noted. The decision will depend on market conditions, including for swaps, which Quebec uses to hedge against currency fluctuations, Leitao said.

The province, which is on track to balance its budget after posting a surplus last year, is already diversifying its investor base. More than a quarter of investors in the first green bond it offered globally last week were based in the U.S., according to finance ministry data.

“There was our pool of usual investors, but also a lot of new investors, and that was the goal,” he said.

The C$500 million ($373 million) bond, which is tied to environment friendly projects, was more than twice oversubscribed, and Leitao said the government will probably come back with more in the next fiscal year, which starts April 1. It’s likely to stick to a five-year maturity as investors’ appetite for a 10-year bond isn’t quite there yet, he said.

Budget Coming

The government, which will outline its budget later this month, has raised 50 percent more than it needed this fiscal year, pre-financing part of its future funding to get ahead of potential interest rate hikes from the U.S. Federal Reserve.

Quebec sold C$500 million of bonds due in December 2048 at 87 basis points above similar-maturity federal government bonds on Thursday. The spread on the offering is the lowest the province has managed to get since the first bond sold in Sept. 2015, according to data compiled by Bloomberg

Quebec’s budget for the fiscal year starting April 1 will be built around an economic growth forecast of 1.6 percent in the francophone province, according to Leitao, who sees corporate investment and exports picking up.

That’s provided global trade doesn’t go off the rails as the U.S. administration mulls a border tax. The government wants to increase contacts with elected officials and the business community in key states such as New York, Pennsylvania or Minnesota “to remind them that trade between the two countries benefits them both,” he said.

“The economic structure is such that links between Quebec, Ontario and these states are very strong,” he said. “Trying to put a barrier will penalize both, because there are lots of industrial components moving around.’’

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