Loan guarantees for aboriginals considered

ANDREW MAYEDA AND ARI ALTSTEDTER TORONTO — Canada is considering loan guarantees for aboriginals that would make it more feasible for them to take equity stakes in resource projects, documents show.

“There is merit to the concept of aboriginal-equity ownership in major resource opportunities, and the use of government loan guarantees is a feasible option to promote these arrangements,” said a briefing note prepared by officials at the Aboriginal Affairs ministry before a Sept. 23 meeting with the First Nations Financial Management Board.

The plan is part of a broader push by Canada to bolster support for energy infrastructure such as Enbridge Inc.’s Northern Gateway pipeline. Bonds issued by aboriginal groups and backed by Canada may be attractive to investors because they would carry the security of a AAA rating while offering a higher yield than typical government debt.

The proposed debt would entice buyers if the Canadian government provides “explicit support” and there’s a “meaningful” spread over other securities, said Jonathan Lemco, senior sovereign-debt analyst at Vanguard Group Inc. mutual fund company.

When Newfoundland and Labrador’s power authority sold $5 billion in bonds last year with a federal guarantee, those notes yielded 50 to 55 basis points more than Government of Canada bonds.

The government created the First Nations Financial Management Board in 2005 to support economic development in aboriginal communities.

The board would provide “financial certification” to aboriginal groups interested in raising debt to buy equity in a resource project, according to a Sept. 18 letter to the government by the board’s executive chairman, Harold Calla.

The finance authority would issue the debt, which would carry Canada’s top credit rating and yield about four per cent, he said.