TMX COMPLETED (ALMOST)

China's Sinochem takes first oil cargo from Canadian pipeline

Serene Cheong, Lucia Kassai and Alfred Cang, Bloomberg News

China’s Sinochem Group has purchased one of the first crude cargoes shipped through a new pipeline in Canada, which is designed to move oil from landlocked Alberta to the Pacific Coast for export.

Sinochem bought a 550,000-barrel cargo from Suncor Energy Inc., which will load from the Trans Mountain Expansion pipeline in May-June, said traders who asked not to be identified. The oil is a heavy crude quality, they added.

The Trans Mountain Expansion is the country’s biggest new pipeline in over a decade and will nearly triple the capacity of the system, allowing Canadian companies to sell more crude to Asia and the U.S. West Coast. The oil purchased by Sinochem is of similar quality to Iraqi Basrah crude and will likely be refined in coker units, traders said.

Sinochem and Suncor didn’t immediately respond for comment.

The pipeline was initially slated to start in 2017 but faced repeated delays, cost overruns, construction mishaps and regulatory hurdles. Canadian Prime Minister Justin Trudeau’s government bought Trans Mountain in 2018 from Kinder Morgan Inc. to save the project from cancellation.

Canadian provinces to borrow 22% more this year as deficits rise

Chunzi Xu, Bloomberg News

Canadian provinces are set to issue more debt than they did last year as they look to plug budget shortfalls, according to National Bank of Canada’s financial markets unit.

Borrowing needs from provinces facing growing deficits and maturing debt are estimated to be $130 billion for the fiscal year starting April 1, the highest in four years, data compiled by the division showed. That’s a 21.5 per cent jump from $107 billion for the prior fiscal year.

The growing financing requirements come as borrowing costs have stayed elevated because of persistent inflation. While that doesn’t bode well for issuers, it could be a boon for investors looking to lock in higher yields before central banks in Canada and across the world cut interest rates. On Tuesday, traders upped their bets on a June rate cut by the Bank of Canada as inflation slowed in February.

“A fairly sizable aggregate borrowing requirement and a still uncertain economic and financial backdrop means the provinces are going to be motivated to get funding in the door when they have an opportunity to do so,” said Warren Lovely, chief rates and public sector strategist at the National Bank of Canada Financial Markets.

There has been already been flurry of issuance from Canadian provinces. Quebec, Canada’s second-largest province, borrowed €2.25 billion of bonds due in 10 years, on top of issuing three Canada dollar-bonds totaling $1.95 billion. It expects a budget shortfall of $11 billion in the fiscal year that begins April 1 — $8 billion more than it previously forecast — and anticipates issuing $36.5 billion in new debt in the 2024-2025 fiscal year. 

Among other provinces, British Columbia tapped the Canadian bond Tuesday and Manitoba borrowed $300 million last week. 

The heightened borrowing needs across provinces won’t necessarily flood Canada’s bond market as international markets will also be utilized, said Lovely. Provinces also tend to issue more longer-dated debt than the federal government, which limits certain risks, said Marc Desormeaux, principal economist, Canadian Economics at Desjardins Group. 

That said, bigger-than-anticipated deficits make the road ahead more challenging for prospective issuers.

“Governments running bigger deficits will be under more pressure to demonstrate fiscal responsibility to their creditors, leaving less room to support the economy in the event of a downturn,” said Desormeaux.

 

Saskatchewan pre-election budget pitches record spending, $273M deficit

Jeremy Simes, The Canadian Press

The Saskatchewan government is promising big-ticket spending on health, education and communities along with no tax hikes and a $273-million deficit.

Finance Minister Donna Harpauer introduced the 2024-25 budget Wednesday, saying that with a growing population and a strong export-focused resource sector, now is the time to invest.

"I would have loved to have ended my last budget as balanced and able to do a tax reduction,” Harpauer told reporters before introducing the document in the house.

"However, it is the budget I am comfortable with, because I do think the premier decided to prioritize in substantive increases."

This is Harpauer’s last year in politics before she retires and the last budget from Premier Scott Moe’s Saskatchewan Party government before a fall election.

The budget promises more than $1 billion in additional spending in core areas, including to address classroom sizes and supports for learning, to shorten surgical wait lists and to boost its revenue-sharing program with municipalities.

Total spending for the budget is pegged at just over $20 billion, and the debt is expected to rise to $34 billion by spring 2025.

Along with the deficit in the 2024-25 budget, there is also more red ink in the current budget.

The projected deficit for the fiscal year ending in March is expected to almost double to $483 million. 

Harpauer defended the deficit budgeting. 

She said Saskatchewan has the second lowest net-debt-to-GDP ratio in the country, and the province needs to keep pace with a growing economy and rising population.

The Opposition NDP said the budget is another exercise in bungled money management and missed opportunities from a government that can’t be trusted to keep its word.

NDP Leader Carla Beck said the Saskatchewan Party made promises before the 2016 election, then made cuts.

She said the budget offers no fuel tax relief for commuters and doesn’t bring forward innovation to transform the health-care system.

"This province used to be a nation leader in health care," Beck said. "If there was ever a time to pop the hood on our health system and repair it from the ground up, this budget would have been it."

Budget day came with an added twist of labour disruption.

Teachers across Saskatchewan walked off the job for the day to draw attention to an impasse in contract bargaining with the province.

Teachers held rallies, with some outside the legislature shouting, “Support education!” 

The teachers want issues including classroom sizes and additional supports to be part of the next collective agreement, but Moe’s government has refused.

Instead, the government has promised millions of dollars in additional spending to tackle those issues outside the collective agreement.

The budget hikes education spending by $248 million to $3.3 billion. There is also $46 million more for classroom supports.

The Saskatchewan Teachers' Federation said the increases don't meet the needs of enrolment growth.

“They are about $250 million short to fill the gap in education and it is simply not enough,” said federation president Samantha Becotte.

Jaimie Smith-Windsor, president of the Saskatchewan School Boards Association, said the funding offers a path to stability.

"We're treating this as the floor, not the ceiling, and we've had assurances that is the case," she said.

On the health-care front, funding is to rise by $584 million to $7.6 billion, including more money for the Saskatchewan Health Authority.

The money is aimed at increasing capacity in the acute-care system and reducing surgical wait-lists. There is also more money to hire paramedics and do more medical imaging tests. And there is $3.5 million more for breast cancer care and screening procedures.

Bashir Jalloh, president of the Canadian Union of Public Employees local 5430 health union in Regina, said he appreciates the promise to spend more but the province must follow through.

"In the past, they have talked about an increase in health care and an increase to focus on recruitment, but we have yet to see that,” said Jalloh.

The province is boosting the money in its revenue-sharing deal with municipalities by $42 million for a total of $340 million. 

Randy Goulden, head of the Saskatchewan Urban Municipalities Association, said she's pleased but worries about reductions to the northern transportation system, which includes highways, ice roads and airports. 

On the capital spending side, there is $4.4 billion mainly for the main areas of schools, health care and communities.

The government is not introducing any new taxes or boosting existing levies.

The Saskatchewan United Party, which has one member in the legislature, said in a news release the province lacks fiscal responsibility with its spending and deficits.

This report by The Canadian Press was first published March 20, 2024.

 

Manulife faces 40% decline in U.S. office investments from peak

Brooke Sutherland, Bloomberg News

Manulife Financial Corp. is facing a divided global office market, with the value of its U.S. office investments having plummeted by as much as 40 per cent from a pre-pandemic peak, according to Chief Financial Officer Colin Simpson. 

The North American market has been deeply impacted by the shift to remote work, with U.S. office vacancy rates surging to a record 19.7 per cent at the end of last year. This stands in contrast to Asia, where office buildings are relatively full, Simpson said in an interview.

“I like to think our property portfolio is of reasonably high quality and quite resilient, but the structural forces of higher interest rates and trends around return-to-office make it a difficult market,” he said.

The worst may be over for the downturn in office property values, said Simpson. But he warned that advancements in artificial intelligence may erode white-collar employment, stifling any potential rebound in demand for desks.

The Toronto-based life insurer reported a 12 per cent year-over-year decrease in the value of its income-producing commercial office properties globally, which totaled $4.83 billion (US$3.56 billion) as of Dec. 31. Including minority-ownership in certain real estate funds, Manulife had $6.3 billion in global office holdings last year, about a quarter of which are in the U.S. 

North American office investments represented about 40 per cent of Manulife’s portfolio of alternative long-duration assets a decade ago, Chief Investment Officer Scott Hartz said during a February earnings call. That figure has now dwindled to about 10 per cent, owing to the growth of other investments and the divestment of some office properties. 

Manulife doesn’t anticipate significant sales of its office properties amid the market slump, Simpson said. “Would we look to increase the exposure at this point in time? Absolutely not,” Simpson said. “Is there a vibrant liquid market we could sell into and realize a lot of value? No.” 

As a life insurer, Manulife has a rare luxury among investors of being able to retain its holdings without the pressure to refinance at unfavorable rates or incur big losses on buildings sales, thanks to the absence of mortgages on virtually all of its properties.

However, the company faces inherent conflicts as both a major North American employer of white-collar professionals and an owner of commercial office spaces. 

Manulife sells insurance and retirement products in the U.S. through its John Hancock unit and owns that company’s iconic headquarters in Boston. That property has declined in value, in part because John Hancock itself needed fewer floors after the pandemic, Simpson said.

 

Manitoba premier says he's considering extending tax holiday on fuel

The Canadian Press

Manitoba Premier Wab Kinew said Tuesday he is considering extending his government's fuel-tax holiday, which is set to expire at the end of June.

The NDP government fulfilled a campaign promise when it suspended, for six months, the 14-cent-a-litre provincial fuel tax on Jan. 1. The move was aimed at helping people deal with inflation.

The government left the door open to a possible extension at the time, and Kinew said Tuesday he is considering it, although he was not prepared to make an announcement immediately.

He referred to the recent closure of an Imperial Oil pipeline that brings gasoline, diesel and jet fuel to Winnipeg from Gretna, Man. The closure is expected to last three months.

"The situation with the pipeline is something that we're learning to live with over the next few months and we're going to be there to help keep life affordable in Manitoba," Kinew said.

When asked whether he would announce a decision before the budget set for April 2, Kinew was coy.

"Where's the showmanship in telling you that now?" he joked with reporters.

The Opposition Progressive Conservatives called on the government in the legislature to extend the tax holiday, in anticipation of a potential spike in prices caused by the pipeline disruption.

"Any prolonged fuel shortage in Winnipeg over the next three months may lead to increased prices," Tory Greg Nesbitt said.

Provincial and Winnipeg city officials have said they are not expecting major disruptions in supply because trucks and trains will be used to replace the pipeline supply while repairs are done.

"Today, I've confirmed that fuel trucks are already on their way to Winnipeg from Gretna," Natural Resources Minister Jamie Moses told the legislature.

This report by The Canadian Press was first published March 19, 2024.

GLOBALIZATION LIVES!

TD signs deal with Indian bank HDFC to attract students looking to study in Canada

TD Bank Group has signed an agreement with an Indian bank in a bid to attract international students as new customers and make it easier for them to comply with visa requirements.

As part of the Canada's requirements to apply for an expedited study permit, students are required to provide proof of financial support, which is accomplished with a guaranteed investment certificate.

Under the program, HDFC Bank will refer students planning to study in Canada to TD's international student GIC program.

TD is offering students the ability to use an online application process to obtain a GIC without an application fee.

The program also includes a student chequing account and a fee rebate to cover their first wire payment into their TD account. 

TD has been HDFC Bank's main correspondent banking partner for Canadian dollar clearing since 2015.

This report by The Canadian Press was first published March 20, 2024.

 

Oilsands producers to file for carbon capture permits this week

Kevin Crowley, Bloomberg News

(Bloomberg) -- A group of major oil-sands producers will submit applications for a $12 billion carbon capture project to Canada’s energy regulator this week with an aim of making a final investment decision next year, according to an executive leading the process. 

The project will be ready by 2030 if permits are approved within a year, said Kendall Dilling, chief executive officer of the Pathways Alliance, a group of six oil-sands producers. It’s a “significant milestone” in a project that’s been in the works for years, he said in an interview at the CERAWeek by S&P Global Conference in Houston on Wednesday.

The project — which would be the biggest of its kind in the world — plans to capture 12 million tons of carbon dioxide a year in its first phase, reducing Canada’s oil sands emissions by about 15%. But without Canadian federal and provincial fiscal incentives. it may never be built, Wood Mackenzie warned earlier this year. 

Both the government and industry are making good progress on securing financial backing for the project, which is key for Canada to achieve its goal of becoming net zero by 2050, Dilling said. The passing of the Inflation Reduction Act in the US and green subsidies in Europe have provided momentum in Canada.

“We’re close,” he said. “I wouldn’t say we’re 100% of the way there but I can see light at the end of the tunnel. I think we’ve got a shared view now of the economics of these projects and what support is required.”

The project involves removing emissions from about a dozen facilities across Canada’s oil-sands sector, then transporting them through a 400-kilometer (249-mile) pipeline before burying them underground. 

“I’m optimistic we’re going to get there,” Dilling said. “There’s a collective sense that we just have to. This is too important to the country, too important to the industry.”

©2024 Bloomberg L.P.

CANADA

Income needed to buy a home rises in most major markets: analysis

Daniel Johnson , BNN Bloomberg

A new analysis found that the level of income required to own a home rose in 12 out of 13 major markets across Canada from January to February. 

In a report Wednesday, Ratehub.ca calculated the minimum annual income levels required to purchase a house in a number of Canada’s major cities based on real estate data. The report found that slight reductions in mortgage rates have occurred alongside rises in home prices. 

“The two key variables, which are home values and interest rates, have moved in opposite directions since January; interest rates are down and home values are up in 12 out of 13 cities,” James Laird, the co-CEO of Ratehub.ca and president of CanWise mortgage lender, said in a statement Wednesday. 

“The increase in home values was enough such that affordability decreased in 11 of 13 cities despite the rate drop.” 

Across the major markets, Toronto saw the most significant increase in income needed to purchase a home, rising by $3,800 from January to February, reaching $214,100. 

Victoria and St. John’s were the only major markets to see reductions in income required to purchase a home. In St. John’s, the income level needed to buy a home fell by $1,000 to $74,750. In Victoria, the income needed fell by $1,060 to $169,300. 

Methodology: 

Data for the analysis used average home price figures from the CREA MLS Home Price Index and mortgage rates were derived from the average of the Big Five Bank’s five-year fixed rates in January and February. The analysis assumed a mortgage with a 20 per cent down payment, 25-year amortization with $4,000 in yearly property taxes and $150 in heating costs. 

 

TPG said in talks to buy Canada REIT’s manufactured housing unit

Ari Altstedter and Gillian Tan, Bloomberg News

(Bloomberg) -- Alternative asset manager TPG Inc. is in talks to buy the manufactured housing business of Canadian Apartment Properties REIT, a move by a major US investor to gain exposure to the historically tight real estate market of its northern neighbor.

TPG is in exclusive discussions to acquire the business for more than C$700 million ($519 million), according to a person familiar with the matter who asked not to be identified because the talks are private. A transaction is not imminent and if a deal is reached, it may not be announced for several weeks, the person said. 

A TPG spokeswoman declined to comment, and a representative for Canadian Apartment Properties did not immediately respond to requests for comment. 

Canada is dealing with an acute shortage of housing after years of underbuilding and a recent surge in immigration, which has left more people locked out of the ownership market and caused rents to spike. That has left large investors looking for ways to get into the market, with pension funds financing more apartment construction and Blackstone Inc. recently striking a deal to buy Tricon Residential Inc., which owns and develops residential properties in Toronto, in addition to the US housing communities that constitute the bulk of its portfolio. 

With ownership affordability at record lows, manufactured housing is emerging as an attractive hybrid between rental and ownership for Canadians. A little like trailer parks, the resident leases the land but owns the pre-fabricated house which sits on it. CAP REIT had 12,134 manufactured homes in Canada across dozens of sites as of the end of 2023, according to a document the company filed with regulators in February. 

That’s about 20% of the real estate company’s housing units in Canada. CAP REIT’s business is concentrated in apartment buildings, and lately it has been selling off older assets to buy newer ones that may be able to command higher rents, as well as developing new buildings itself.

©2024 Bloomberg L.P.

 

Snowmobiles finally get the Tesla treatment

Kyle Stock, Bloomberg News

Imagine you are a moose, chomping away on some twigs without a hint of concern in your beautiful, tennis-ball-sized brain. If a 700-pound machine zooms up behind you, roaring like a vacuum cleaner with a chainsaw attached, you might be inclined to stop what you’re doing and try to stomp it into smithereens. 

At least, that was the reaction Cory Burrows got when he encountered a moose while snowmobiling in the Rocky Mountains west of Denver. “I basically did a backflip off the machine and started sprinting,” Burrows, a guide for tour operator Grand Adventures, told me. “I ended up crouched behind a tree just watching the moose on the trail above me. He was fuming.”

When Burrows and I met to traverse a snowy trail outside Winter Park, Colorado, in February, he was more sanguine as he scanned the trees ahead. The snowmobiles we sat astride this time were electric and, as such, hummed along as quietly as a refrigerator.

“As far as I can tell, the moose don’t pay attention to them,” he said. 

The humble snowmobile, a staple of winter travel in northern latitudes, is finally going electric. Motivated by a wave of green consumers and emissions mandates in U.S. national parks, manufacturers are trading long trips and a facility with fresh powder for a lighter carbon footprint and near silence, while working on next-gen machines that offer more functionality and fewer compromises. 

Late last year, BRP Inc., a Canadian motorsports empire, introduced a pair of electric snowmobiles to tour operators including Grand Adventures. In February, the company doubled down, unveiling its first electric models for individual consumers. The U.S. offering, the Ski-Doo Expedition Electric, comes with a price tag of US$17,000, compared with about $11,300 for one of the company’s gasoline-burning equivalents. Its European cousin, the Lynx Adventure Electric, runs consumers about €21,000 (US$22,800).

Also on the market is an electric snowmobile from Canada-based Taiga Motors Corp., which only makes battery-powered machines and has produced roughly 500 of them since launching in 2015. The Ski-Doo zips at up to 31 miles an hour and covers about 30 miles on a charge. Taiga says its version gets up to 62 miles per charge. 

“Six or seven years ago, if you mentioned the idea of an electric snowmobile, you’d get laughed out of the room,” said Taiga Chief Executive Officer Sam Bruneau, who likened his company to Tesla in the early days of EVs. “It was so far out of their minds and that’s what really created the opportunity for us.”

Even more competition is on the way: Vidde Snow Mobility AB, a Swedish startup, plans to deliver its first 1,000 electric sleds later this year, including a batch bound for the storied Icehotel in Jukkasjarvi. Minnesota-based Polaris Inc., which makes a variety of off-road vehicles, has its own prototype of a battery-powered snowmobile; although it declined to say when it will start cranking out a production version.

“For commercial customers in particular, zero-emission is a big deal,” said Josh Hermes, Polaris’ vice president of off-road EVs.

Snowmobiles aren’t a natural fit for electric drivetrains. Cold weather drastically crimps battery chemistry and range along with it, while the vehicle’s movement comes from what is essentially a conveyor belt of paddles pushing the snow. Friction is unavoidable. A bigger battery makes for more range, but adds weight that increases the friction, diminishing returns for riders.

“Honestly, a snowmobile is one of the worst vehicles to electrify,” said BRP CEO José Boisjoli, describing it as solving a puzzle that pits size against range against price point. “But we need to start somewhere. People are more and more conscious of the planet.”

To reduce drag and increase range, BRP fits its electric sleds with smaller, narrower skis on the front and a shorter track with smaller ridges underneath. That helps them churn away efficiently on a packed trail, but it means that for now the electric models flounder in deep, untouched powder.  

Those wintry hurdles are a major reason other off-road vehicles got the Tesla treatment first. Last year, Polaris started shipping an electric version of its Ranger XP Kinetic, a golf cart on steroids that the company pitches as ideal for quiet hunting or life alongside nervous livestock. Even that product is aimed at “utility” customers like farmers, and not the average recreational adrenaline junkie. 

Utility customers have “easy access to charging and they’re not traveling long distances,” Hermes said. By contrast, just five per cent of snowmobile use is job-related, according to estimates from the U.S. Department of Agriculture. 

Boisjoli said BRP is quickly expanding the range on its electric machines; and for shorter trips, the current models are plenty. Three times a day, Burrows runs Grand Adventures’ sleds on hour-long tours, then charges them for an hour before sending them out again. In the morning, he doesn’t have to arrive early for fueling. “I literally just unplug them and we go,” he said.

BRP plans to offer an electric option in every category of vehicle it makes. The company will launch a battery-powered motorcycle this year, a hydrofoil next year and eventually a boat. There are also plans for an all-terrain vehicle and an off-road two-seater.

“To develop a good mountain snowmobile that’s electric, it’s impossible,” Boisjoli says. “Maybe in 20 years. But we cannot ignore that there is a trend out there toward greener products. We want to be a pioneer on this.”

Polaris has been less strident about electrification, but says the technology is already a good fit for utility applications: farms, resorts, property managers and other work-related trips. “We’re going to be very intentional about where and when we chose to commercialize electric vehicles,” Hermes said. “But those customers tend to travel at slower speeds and shorter distances. And they’ve got easy access to charging.”

From a climate perspective, electric snowmobiles are a no-brainer. While the U.S. doesn’t regulate snowmobiles’ greenhouse gas emissions, even the most efficient models typically emit far more, mile for mile, than internal-combustion cars. That’s why Yellowstone National Park, for example, caps snowmobile visitation at 720 machines a day and only permits vehicles that meet strict emissions and noise thresholds. 

But snowmobiles’ overall emissions footprint is tiny. For one thing, there aren’t that many of them. While drivers buy about 67 million cars and trucks every year globally, annual snowmobile sales hover around 125,000, according to the International Snowmobile Manufacturers Association. That makes the entire planet’s snowmobile market roughly the size of the car market in Utah. Across the U.S., there are only 1.3 million registered sleds. 

Bruneau at Taiga concedes that going electric also has a negative stigma for many snowmobile enthusiasts. “You can see it in our social [media] comments,” he said. “Fifty percent of people are staunchly against electric and 50 per cent are very pro-electric.”

That’s why his company’s pitch is as much about expanding the market as it is about winning over incumbent riders. Almost one-third of Taiga’s retail orders have come from people buying their first snowmobile, according to the company. “A lot of people like vehicles that are loud and pollute,” Bruneau said. “But a lot more people stay away from them because of those things.” 

Deep in the mountains of Colorado, it’s easy to see the appeal of electric models. While a gas-burning sled is about as loud as a tractor-trailer, BRP’s battery-powered Ski-Doos sound more like box fans — a constant “shush” from the gliding skis up front mixed with a subtle “whir” from the tread paddling away at the snow underneath. The machine also gets going quickly, offering the same kind of instant, low-end torque Tesla drivers are so fond of. 

When the Ski-Doos got down to their last electrons, Burrows led us off of a snowy peak and back to a lodge nestled at the base of the mountain range. The moose never showed, but a pack of friendly dogs scrambled out to meet us as we pulled up to a dozen Level-2 chargers sticking out of the snow like parking meters. 

“These will be ready to go in the morning,” Burrows said. “We’ve been out there two hours, but honestly I think they can go three.”