Bruce Anderson on Manulife (Audio)

of Canada. Financial Markets were live at Bloomberg World Headquarters in New York City and Pim and I have interviewed so far corporate and government leaders, investors and analysts trying to get a better understanding of Canada's bond markets and particularly the forces that drive Canada's bond markets so investors can better understand them as well. And we're very happy

to welcome to the show now Bruce Anderson. He's Managing director for Project Finance and Infrastructure at Manual Life to look at infrastructure investment and certainly around the world as people say, monetary policies, central banks are running out of AMMO. Something's got to take the take the baton now, and it's got to be fiscal policy and infrastructure spending of course is a very very big issue right now. So

welcome to the show, Bruce. So tell us little bit more about your role at Manu Life, What what are you doing, what are you watching? So our our group is responsible for UH sourcing new transactions in the project finance space. So that's for US renewable energies and UH and infrastructure public private partnerships. So the sourcing transactions, do you are putting the people with the money together with

the people entities that need the money for the project. No, it's our money, so we're you're right for our So I'm responsible for investing our balance sheet. Our group invests our balance sheet, so we are looking for projects to put money into. On a fixed income fixed income site, tell us about infrastructure investing in Canada and then we'll sort of broaden it out a little bit, but tell us some of the attractive characteristics and some of the

challenges of investing. So as a sector, I think it's it's maturing and it's becoming very popular. Hard assets are very popular to both owners but also funds like ourselves. And what would be some examples like a toll road, pipeline, what so UH renewable energy projects, solar, wind, hydro, UM, Social infrastructure so things like hospitals, schools, courthouses UM and then civil infrastructure projects which would be roads, bridges, light

rail systems, things like that UM. And what's attractive to us UM. You know, there's probably three main things. First is duration UM as a as a life co. Our liabilities are long so whether they can life insurance company correct, so whether they come from the life insurance products that we sell or our pensions and benefits programs. Our liabilities are long dated. And infrastructure assets provide long dated assets or long dated paper that we can match against those assets.

So there's twenty thirty year paper, so that for sure is attractive. And to stop before you move on to the to number three, what kind of return can you on average get right now? Because that's another big story. Reach for yield global bomb markets, government bonds that yields are solo or negative. What can you get in infrastructure projects in Canada? So you know infrastructure, you're the yields have have compressed and they are you get a yield

over the corresponding corporate curve. We as the corporate curve moves, so to our yields. So today you're probably looking on a twenty year deal in the low two hundreds as a spread over over governments, that's probably you know, fifty two sixty over the corresponding corporate curve. As the curves move in or move out. Our spreads moving or move out, but are the premium over the curve. We try to keep fairly consistent and UM these are high quality assets,

so we're not getting huge returns. These are are pretty narrow returns, but they meet our portfolio nicely. You mentioned renewable energy and I'm wondering how that fits into the context of Canada as being a major fossil fuel producer. So uh, I think a number of the Canadian provinces have really made an effort over the last few years to wean themselves off carbon and to um develop sources

of production and generation that is it's green and is redowable. So, whether it's through the the fit feeding terror program that Ontario has UM or some of the calls that you see have made, there's been a number of new projects UM wind solar especially that have been developed to UM allow the government to to allocate a certain percentage of

their of their energy to renewable sources. So when you are looking for projects, what obviously the turns important, But you just said you've got yourself in a range, So then what do you look for. Is it the kind of project, is it the location is that the people running it, because you're gonna put some real money to work for people are going to count on those returns. Is a big responsibility. How do you make that selection?

The partner that you're going to be working with the equity sponsor is important, um, and who their partners are in terms of who's the builder and who's the operator, um, those those are important. The Kingdom market has matured so that and it's a fairly small market, so you know

them and they're all fairly um competent um. Really, you know, what we look for over and over and we say this to the authorities that are bringing the projects forward and the sponsors that are that are developing them is structure. So we're real estate is location, location, location for us,

project financial structure, structure, structure. So in order to UM, you know, to achieve the let's say the rating, the underlying credit rating and therefore the pricing that they want from us, UH, structure of the deal has to be properly structured, has to be attractive to us. They need to know what structural elements are key and what ones can we concede on or not as important to us.

And and that's really just a communication, UM, just developing relationship over time, they get to know what it is that we look for, and we know what is they're going to offer, and where the pinch points are going to be, and then really trying to make sure it's structured properly. Can you offer up a specific example of a project that you recently have been involved with and how that worked out, and then maybe that can be used to illustrate some of the concerns that you have

for projects in the future. Uh So last year UM, in twenty fifteen, there were a number of what are called mega projects done. One of them was the Champlain Bridge in Montreal. It's a massive, multi billion dollar project. UM. The long term financing piece was a very large piece and we took a fairly significant investment in it. And you know, it was a it's a complicated project. It's a bridge over a river. UM. So you had to

understand those risks of building in a river. It was tying into existing highway systems, there was an existing bridge that was being replaced, it was going to involve tolling. UH those are some of the risks that you had to get your head around to UM to sort of

understand whether or not investment you wanted to pursue. It was structured in a way that UM provided us with the comfort that we needed to make sure that in any sort of downside scenario we were still as lenders going to be protected and UM that was a project that really worked out well, I think for all all involved. Well, it seems the fact that you're that you have a government committed to the fiscal stimulus spending is a huge

plus for anybody looking for projects. There are you know, many countries around the world say they that that's what's needed because the central banks don't have a lot more AMMO. But it certainly the United States we've had a tough time at the federal level getting too much that off the ground. You know, Canada's been um I think a leader recently at the senior levels of government in terms

of providing that sort of funding for these projects. And you know, if anything, it doesn't we don't feel that it crowds us as lenders out. In fact, it does the opposite, we believe, UM it allows projects to move forward that maybe wouldn't otherwise go forward because a number of the junior levels of government where there's means palties.

They have limited abilities to raise to raise revenues through taxation, and so without a contribution from the senior levels of government, these projects like light rail projects may not move forward. And so for you know, from our perspective, you know, the stimulus spending actually increases the pipeline of opportunities that we will see. Does it also increase the interest level

of foreign investors in infrastructure projects in Canada? I think what in so there's a great deal of foreign interest in our transactions. I think what is attractive to them is good pipeline. So that helps with the pipeline, but also the fact that we have a good history of doing deals and a good history of closing deals. Not deals don't just get announced, but they get closed. There's less political interference. Um, you don't run the risk of

a project starting and then stopping. Canada's got a very good history of of actually closing and delivering on their projects. Is it Does it help it? I mean that the Canadians are um centered along the border with US and no otherwords, more more kightly living together. In some sense, it's a huge country and as a smaller population, seems like there's a lot of support for this kind of thing in Canada that maybe isn't always here in the US. Yeah,

I think so. I think, uh, you know, because of the way as you described our population is, you require a significant amount of infrastructure between those locations and to get people and goods between locations from locations, uh you know, trade. So I think our government's recognize that that that maybe we're at a disadvantage relative to the U s which has so much more dense density in certain certain areas

and and so um you know. I think that over is the overriding one of the overriding issues with with why there's been such a positive spending in Canada. I want to thank you very much for spending time with us and enlightening us about infrastructure investment in Canada. Bruce Anderson, Managing Director, Project Financi. It's an infrastructure for manual life doing business in the United States Center with the John Hancock as the brand. This is taking Stock, We take

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