News

Caisse de dépôt et placement du Québec has launched an $8-billion borrowing program that it says will strengthen the stability of its financing sources and reduce risk.

The giant public pension fund – Canada's biggest – said Friday its subsidiary, CDP Financial Inc., could issue up to $8-billion of bonds in Canada, the U.S. and Europe by the end of next year, depending on market conditions.

The new long-term debt will be used to replace some of the institution's short-term debt, a move the Caisse says will increase the stability of financing sources.

“By limiting our exposure to the uncertainties inherent in short-term funding and by better matching the duration of our sources and uses of financing, the refinancing program is another important element of our plan to reduce financial risks and to strengthen the foundations of the Caisse,” the fund's president and chief executive officer Michael Sabia said in a news release.

“In addition, this initiative will contribute to our effort to improve returns over the medium term by locking in financing at today's historically low interest rates,” he said.

The Caisse has been hit hard by the global financial meltdown and under the recently appointed Mr. Sabia it has been moving to boost its risk-management safeguards and reduce its exposure to high-risk areas.

Quebec Finance Minister Raymond Bachand said on Wednesday that the Caisse missed out on the initial stock-market rally earlier this year and will likely underperform its peers in 2009.

The Caisse last year reported a huge $40-billion loss on its investments, equal to a negative return of 25 per cent, compared with an average return for its Canadian pension fund rivals of minus-18 per cent.

In a financial update in August, the Caisse said it had to take $5.7-billion in writedowns related to risky commercial real estate loans and private equity bets.

Credit-rating agency DBRS said Friday that the new $8-billion refinancing program “will provide better asset-liability term matching for investments such as the U.S. real estate portfolio.”

DBRS said it expects to rate the new notes to be issued by the Caisse as AAA, barring any intervening events.

The rating agency said it maintains its overall AAA credit profile of the organization.