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S&P, DBRS warn Quebec government not to tamper with Caisse independence

The head office of Caisse de dépôt et placement du Québec in Quebec City.


As Premier Pauline Marois was setting out an ambitious blueprint for Quebec's economy Friday, two major bond-rating agencies issued a warning over one of her election promises.

They warned that they might lower the rating of one of the province's financial cornerstones, the Caisse de dépôt et placement du Québec, if her government tinkered with it in a major way.

While Ms. Marois was extolling the virtues of innovation to a business luncheon, Standard & Poors's and DBRS said in reports that the status quo is just fine for the province's big pension-fund manager.

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Both credit rating agencies reaffirmed the triple-A rating held by the Caisse, one of the largest pension-fund managers in Canada, citing its strong financial position and liquidity. But they acknowledged unease with a government review of the Caisse's mandate.

"We could take a negative rating action if we believe the outcome of the newly elected provincial government's mandate review reduces the fund's independence or includes public policy initiatives that restrict its investment strategy," said a statement by Standard & Poor's, which gives the Caisse a higher rating than the province itself.

"Currently, we view this as unlikely."

DBRS said its triple-A rating reflects the Caisse's high level of assets.

"However, new legislation could conceivably be introduced, potentially resulting in the Caisse's largest depositors seeking the service of private asset managers, which could adversely affect the size and diversification attributes of the portfolio while reducing liquidity levels and debt coverage."

It said it thought that major changes were unlikely because of the Caisse's importance to the provincial economy. But it cast a wary eye on the recent election platform of Ms. Marois' Parti Quebecois, which signalled a strong interventionist streak.

"As outlined in its election platform, the newly elected Parti Quebecois government may seek to broaden the Caisse's mandate to further contribute to the development of Quebec's economy and enterprises, which could test the independence of the Caisse."

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The warnings by the agencies are the latest fingers to wag at Ms. Marois' government since it took power on Sept. 4.

It first took heat over proposed retroactive tax increases for upper income earners and had to back off. The business community also came out and said plans to toughen Quebec's language laws weren't needed because current legislation was strong enough, although the government maintains it will protect French.

Ms. Marois didn't mention the Caisse in a speech to the Montreal metropolitan chamber of commerce, focusing instead on an economic vision of Quebec where everyone would prosper.

"My government seeks the enrichment of all Quebeckers," the Premier said.

That would be achieved through such measures as a strategy to encourage research and development and the promotion of Quebec as a good place to invest. Quebec would build on its strengths in high-tech and aerospace and encourage entrepreneurs.

It would also responsibly exploit natural resources and Ms. Marois reiterated a campaign promise to revisit the royalties paid to companies tapping into the province's bounty.

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She acknowledged the turmoil in the global economy and cited her experience as Quebec's finance minister to keep the province on track after the Sept. 11, 2001, terrorist attacks in the United States.

Ms. Marois said public finances must be rigorously managed, and said while she hadn't planned to bring in an early budget, the state of the government's books made the budget planned for Nov. 20 a necessity.

While she insisted innovation would be rewarded, Ms. Marois vowed that corruption would not be tolerated.

Her remarks came as Gilles Vaillancourt, the mayor of Laval, stepped down amid corruption allegations swirling around his administration. Mr. Vaillancourt, who led Quebec's third-largest city for almost a quarter-century, has denied any wrongdoing and said he's following the advice of his doctor.

His resignation followed that earlier this week of Gerald Tremblay, Montreal's embattled mayor. He has also denied any suggestions of corruption but said the current situation had politically paralyzed his city.

Ms. Marois said her administration had vowed to fight corruption.

"Corruption represents a risk, an obstacle for investors," she said.

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