B.C. eyes green bonds for dam project
Approach costs more to administer but attracts wider band of investors
VANCOUVER — British Columbia is considering selling green bonds to help fund an $8.8-billion hydroelectric dam, among the biggest infrastructure projects in Canada.
Finance Minister Mike de Jong said he discussed the possibility of raising money via green bonds for the project in meetings last week with fund managers in Boston, New York and Chicago. The Site C dam, about 800 kilometres northeast of Vancouver, would be the third on the Peace River, powering 450,000 homes in Canada’s westernmost province.
“We obviously have a very large green project in Site C and we’re asking, ‘Is there an opportunity, what would that opportunity look like, and can you advance something along those lines without sacrificing liquidity?’” de Jong said by phone from Toronto.
A sale of green bonds would be a first for the B.C. government as it seeks to capitalize on a wave of socially conscious investment funds sprouting up around the world. It could occur as soon as this year, de Jong said.
Issuance of the bonds used to finance renewable energy and other environmentally focused projects has totalled $80 billion US since 2010, according to a Bloomberg Intelligence report.
Ontario last year sold $500 million Cdn green bonds, becoming the first Canadian province to do so, while Export Development Canada sold $300 million US in January 2014, according to data compiled by Bloomberg. The four-year notes are yielding 38 basis points more than comparable Canadian government debt, little changed from their issue price.
B.C. has no plans to do anything that would undermine liquidity or demand for existing provincial bonds, Jim Hopkins, an assistant deputy minister in B.C.’s finance ministry, said.
While green bonds can be more expensive due to the tracking and monitoring involved, they can attract a broader range of investors, KPMG LLP said. Massachusetts sold identically priced regular and green bonds in 2013, yet the green issuance was 30 per cent oversubscribed while the regular one lured fewer investors than sought, the firm said.
Still, B.C. would have to overcome a reluctance among some fixed-income investors for green bonds until the market becomes larger and cheaper to exit, Hosen Marjaee, senior managing director at Manulife Asset Management Ltd.
“You don’t want to do a one-off deal and then forget about it,” he said. “It’s important to make a commitment to this segment of the market and to come more frequently and create a market place where investors have confidence that they can buy and also sell, without leaving much on the table in terms of transaction costs.”
With an Aaa rating from Moody’s Investors Service and a AAA grade from Standard & Poor’s, investors in B.C. debt demand an extra 67 basis points of yield compared with Canadian government debt to buy the province’s 10-year bonds. That spread has narrowed from 80 basis points at the start of the year, according to Bloomberg data.
The green bond market can also be fragmented because there’s no established definition of what exactly they are, said Brian Depratto, a Toronto-Dominion Bank economist. TD has engaged outside auditors to verify the $500 million Cdn of green bonds it sold last month to fund environmental initiatives.
“A lot of these activities carry the risk of being called greenwashing,” Depratto said, adding they “need to prove they’re creating an environmental benefit. ...”
While the 1,100-megawatt project will create 10,000 construction jobs, it will also flood 5,400 hectares of land. The project faces legal challenges from local landowners and aboriginal groups.