Canada’s largest utilities are holding a yard sale. The federal government is poised to help Indigenous investors go bargain shopping.
Analysts say it’s a buyer’s market. The spike in interest rates has created an auction with plenty of motivated sellers and far fewer potential bidders from the private equity and pension plan crowd than we’ve seen over the past decade.
For Indigenous investors, keen on owning stakes in projects built across their lands, the current market dynamics represent a generational opportunity. The biggest barrier to investing is a lack of cash, especially debt financing. For reasons rooted in legislation, it’s difficult for Indigenous groups to borrow.
A solution may be coming.
In political circles, there is speculation that in the near future, federal Finance Minister Chrystia Freeland will introduce an Indigenous loan guarantee program. The move would provide much-needed capital for investments in infrastructure projects. With the stroke of a pen, the Finance Minister could empower Indigenous groups and promote reconciliation.
Loan guarantees can’t come soon enough: Indigenous leaders and CEOs at some of the country’s largest companies have spent years lobbying for a federal financial backstop.
“The conversation about First Nations’ access to capital is not just an Indigenous problem, it’s a Canadian problem,” Harold Calla, First Nations Financial Management Board executive chair, said at a recent conference in Vancouver.
The First Nations Major Projects Coalition estimates there are 470 projects either planned or in progress on Indigenous lands across the country, worth a combined $575-billion.
“We can be a net beneficiary to Canada through our Indigenous participation,” said Mr. Calla, a member of the Squamish Nation. “We need to have access to the balance sheet that Canada has denied us for 300 years from developing.”
The blueprint for loan guarantees already exists, courtesy of the Alberta Indigenous Opportunities Corp., a provincial Crown corporation created in 2019. Last year, 23 Indigenous groups tapped the AIOC for $250-million to help raise a total of $1.1-billion and acquire an 11.6-per-cent stake in a network of seven Enbridge pipelines.
The federal government can turn this into a national program, essential to pipelines and other projects that cross provincial and national borders.
The list of projects that would win elusive social licences if they included a dollop of Indigenous ownership starts with the government-owned Trans Mountain pipeline.
Potential operators, such as Pembina Pipeline Corp. PPL-T, have already struck Indigenous partnerships as they begin negotiations with Ottawa for a stake in the project. Giving First Nations groups in Western Canada access to capital is critical to getting at least a portion of the $35-billion bill for Trans Mountain’s expansion off the government’s balance sheet.
Indigenous groups could also be bidders, according to analysts, on TC Energy’s 460-kilometre Grand Rapids pipeline and 72-kilometre White Spruce pipeline, which connect oil sands projects near Fort McMurray to refineries outside Edmonton.
In Eastern Canada, the Mi’kmaq First Nations are trailblazers when it comes to taking equity stakes in local industries. In 2021, they partnered with Premium Brands Holdings Corp. PBH-T to buy Clearwater Seafoods Inc. for $1-billion.
There’s now an opportunity on a similar scale in New Brunswick. Halifax-based Emera announced plans last week to raise approximately $1.4-billion from asset sales. Analysts at RBC Capital Markets say Emera will likely sell stakes in two New Brunswick natural gas pipelines. With access to debt, Indigenous investors could take a run at Emera’s 145-kilometres Brunswick pipeline or its 13-per-cent stake in the 1,100-kilometre Maritimes & Northeast pipeline.
Federal loan guarantees have the potential to make Indigenous groups partners, rather than bystanders, in the next stage of Canada’s economic growth. Launching such a program wouldn’t add a dime to deficits. With many of the country’s largest utilities now selling high-quality infrastructure, it’s time for Ottawa to start backstopping Indigenous investors.