La Caisse to finance, develop Quebec infrastructure projects

MONTREAL—A deal struck between the Quebec government and la Caisse de depot et placement du Quebec will see the pension fund manager take over the development of infrastructure projects in the province, starting with two major public transit systems worth $5 billion.

The province is looking to eliminate its estimated $2.4-billion deficit as of 2014-15 and cut costs.

The province’s debt represents 54 per cent of its gross domestic product (GDP), with interest payments amounting to $30 million a day.

“Considering this level of debt and the state of public finances, the alternative was to not do projects or do them poorly,” Quebec Premier Philippe Couillard said at an announcement.

The provincial pension fund, la Caisse manages $214.7 billion of assets and is one of Canada’s largest investment managers.

It has more than $10 billion and 15 years of experience in infrastructure investments around the world.

The first two projects announced by the partnership are a public transit system on Montreal’s new Champlain Bridge and a transit link between downtown Montreal and Montreal—Pierre Elliott Trudeau International Airport.

La Caisse is aiming to complete the projects, worth a combined $5 billion, before the end of 2020.

Quebec plans to invest about $90 billion in infrastructure projects over the next 10 years.

Couillard and la Caisse CEO Michael Sabia hailed the partnership as one that could extend outside Quebec’s borders.

“We’re at least showing a way forward for other governments in Canada and elsewhere,” Couillard said. “We want to be an agent for change in Quebec but also with our neighbours.”

Sabia said the institutional investor was looking for opportunities closer to home.

“We’re an equal opportunity partner so if my friends at CPP (Canada Pension Plan) or Teachers’ (Ontario Teachers’ Pension Plan) or OMERS (Ontario Municipal Employees Retirement System) want to do some work with us on this we would be only too happy to do so,” he told a news conference, adding it is also open to funds in Asia and Europe.

In 2005, la Caisse was an investor in the construction and operation of Vancouver’s Canada Line, the rapid-transit service connecting suburban Richmond and the city’s airport with the downtown.

Under the plan in Quebec, la Caisse will create a subsidiary to plan, finance, develop and operate projects, starting with public transit.

It would look to earn returns through its management of the construction, operation and ongoing maintenance of projects.

Other projects proposed by the government would be added and financed by equity investment and long-term debt.

La Caisse is limited to no more than a 30 per cent stake in a project.

Under the provincial agreement, it can refuse to participate in any projects if they aren’t profitable enough.

Sabia bristled at the suggestion that the partnership with the government will compromise its investor independence.

“There’s no question here of la Caisse becoming the financial arm of the government of Quebec,” he told reporters. “This is about the strategic use of a convergence of interests to work in the interests of the people of Quebec and in the interests of depositors of la Caisse.”

Infrastructure investments are appealing to pension funds because of their generally steady cash flow and long life.

La Caisse is a shareholder in large engineering and construction firms such as WSP Global Inc. and SNC-Lavalin Inc., but Sabia said projects will be reviewed by an independent auditor.

Debt rating agency DBRS said the agreement is consistent with la Caisse’s strategy to grow its private market holdings, particularly infrastructure investments.

“Further, it allows (la) Caisse to capitalize on its unique understanding of the Quebec market and address growing infrastructure needs in the province,” it wrote in a report, adding the agreement has no implications for DBRS’ ratings of la Caisse.