Newcomers Reinvigorate Maple Market as Buyers Seek Variety

2017-05-17 15:55:19

By Maciej Onoszko, Bloomberg NewsAT&T Inc. is the fourth non-bank issuer of maple bonds this month, joining a growing group of global companies taking advantage of attractive funding terms and demand from Canadian investors looking for alternatives.

The Dallas-based communications company is offering at least C$500 million ($367 million) each of seven-year bonds and 30-year securities. Its return to the maple market after almost four years comes on the back of recent debut offerings from United Parcel Service Inc. and PepsiCo Inc., as well as Anheuser-Busch InBev SA’s return after a four-year hiatus with a C$2 billion sale, Canada’s largest non-bank corporate bond offering since 2011.

One of the reasons for the increased issuance is that unhedged funding costs in the Canadian dollar are now more attractive relative to the U.S. market. Federal Reserve officials signaled this month they’re on track to raise interest rates two more times this year, after they’ve already increased borrowing costs twice in the past six months.

“If you’re a treasurer and have assets in Canada, it makes a lot of sense to issue in the Canadian dollar,” said Alex Schwiersch, who helps manage about C$3 billion in fixed-income assets at Invesco Canada. “From the buyer’s standpoint, there’s the diversification benefit: there are sectors not always available in Canada that are available in other markets and it’s nice to see those come to the maple market.”

Canadian dollar bond sales by foreign companies accounted for almost a quarter of the country’s corporate issuance this year, the highest share since 2007, according to data compiled by Bloomberg. Earlier this year offerings of maple bonds, or securities denominated in the Canadian dollar from foreign companies, were dominated by large U.S. banks such as Goldman Sachs Group Inc., Bank of America Corp., Wells Fargo & Co. and Morgan Stanley.

Diverging Policies

While the Fed is on track to boost rates again, the Bank of Canada’s on hold citing slack in the Canadian economy. That makes the coupons on the bonds offered in the Canadian dollar lower than on similar debt sold in the U.S. market, according to Bradley Meiers, managing director and head of debt syndication at HSBC Bank Canada, which helped arrange the bond sales by PepsiCo and UPS.

“One thing I’m encouraged by is that the pricing is attractive for global issuers and that hasn’t happened since pre-crisis,” Meiers said. “This is really peak interest among global treasurers both in the U.S. and elsewhere.”

Back in 2007, foreign issuers in the Canadian dollar accounted for 37 percent of total issuance in the currency, compared with between 11 percent and 19 percent in the following years till 2016, according to data compiled by Bloomberg. So far this year, foreign issuers represent 24 percent of total issuance.

The market has gone from being dominated by just international banks, sovereigns, supranational issuers and agencies to making room for corporate maple issuers, according to Jamie Hancock, managing director and head of Canadian debt capital markets at Bank of America Merrill Lynch in Toronto, which co-led the sales by AB InBev and UPS.

“One of the uncertainties in Canada was whether there was enough depth in the market,” Hancock said. “Now we’ve moved the goalposts in terms of the transaction size you can expect from the Canadian market given the order books we’ve seen on these recent transactions and there’s certainly more appetite there from investors.”

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