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00:00Well, Elizabeth, Stephen, thanks for joining us.
00:03It's good to be in New York.
00:05We're in New York, so let's start off with talking about foreign demand for your issuance right now.
00:12We're seeing non-Canadian trading of provincial debt rising steadily since 2023.
00:19Let's talk generally about why that is, and in current months,
00:23maybe talk about whether the outflows potentially from U.S. treasuries is having a little impact.
00:30Okay, I guess I'll get things started.
00:35In terms of borrowing non-Canadian interest in the Canadian sector of issuers,
00:45we do have something we're colloquially calling Canada Inc.,
00:49not something we coined, something that has sort of emerged as we've gone through since 2023
00:55with international interest in Canadian credits,
01:01specifically the Canadian provinces and PSE credits.
01:05You just had one sitting here just before us.
01:08And our presence in those international markets, our reach into them,
01:12is somewhat buoyed by all of us participating.
01:15So for each one of us that goes into a market outside of the Canadian dollar,
01:20what we're finding is it kind of paves the way for the next and the next,
01:25and a lot of receptivity.
01:27I think foundational to that receptivity is the fact that Canada on the world stage
01:32is having a bit of a moment in that we are a politically and economically stable space
01:38in a world that has many sort of unsettled regions
01:42or just periods where things seem to be, I guess, somewhat volatile and hard to get a read on.
01:50So I think that backdrop has been really constructive.
01:53And when you look at something like what I'm calling Canada Inc. here,
01:58you're looking at a variety of credits that are all extremely creditworthy,
02:02but still give you a little bit of room to play up and down the credit curve
02:06and also give you, you know, slightly different personalities for each of us,
02:11which I think over the course of the last day and a half,
02:13we've been meeting with investors,
02:15as have many of the Canadian provinces and pension funds here.
02:19And we've all been telling our unique stories,
02:21but underlying that is a common thread that binds us all.
02:25And we are really having, like I said, that Canadian moment on the world stage.
02:30And I think we're all supporting each other as we go out into that world
02:34and try and raise funds for our different programs.
02:37And that's really kind of resonating with investors in the here and now.
02:42Yeah, no, I would agree.
02:44I think the personalities comment might have been directed at me, but that's okay.
02:48We, you know, as Canada, as issuers, Canadian provinces are really quite unique on the world stage.
02:56We have far more autonomy than you see in sub-sovereign issuers generally.
03:01But we also have great liquidity.
03:03You know, the Canadian domestic market is the foundation of what we've sort of taken to the world.
03:09And we've all been quite regimented.
03:11We've all been quite programmatic, systematic about how we approach the Canadian market.
03:15And we've ensured that the Canadian investor base is well-informed,
03:20is able to trade in and out of our bonds,
03:22as Elizabeth says, has a menu of options.
03:26You know, you have Ontario, which is sort of the base of the Canadian provincial issuance market.
03:32And then you can trade in and out of, you know, more wild spread.
03:35It's like Alberta.
03:36You can get a little more spread, a little more volatility.
03:38But as we take that into the world stage, it's interesting that we see, you know,
03:45our first entry is always sort of in foreign currency, meeting foreign demand.
03:49But then maintaining that same level of liquidity, that same level of interaction with the investors.
03:55And as Elizabeth said, like the development of Canada, Inc.,
04:00which involves, frankly, the pension funds spending a lot of money,
04:04which as provinces we don't or can't in the same way in terms of marketing,
04:09in terms of global presence, in terms of also partnering on investment, not just on issuance.
04:14We've actually banded together.
04:16Like, you know, we're Canadian.
04:18We're not Albertan or Ontarian.
04:21We all work together.
04:23So we talked about some of the similarities that you guys work together on.
04:27Let's talk about some of the differences, and particularly some of the headwinds
04:31that may be coming up or are currently here for your different economies.
04:36I'll start with you, Elizabeth.
04:37With Ontario, dynamic, diverse economy, but also quite trade-sensitive.
04:47And there's sectoral tariffs that are on some of the products, main exports of Ontario.
04:56And the outlook for growth is, you know, around 1% to 1.5, I think, over the horizon.
05:03And tell me about some of the challenges or maybe some of what you're hearing from investors
05:08regarding some of the headwinds facing the Ontario economy.
05:14I would say that in terms of the feedback we're getting from investors at this point in time,
05:20we're Canadian investors especially, but now more, as we are, you know, more prevalent in foreign markets,
05:29it's coming through there too.
05:30There's a little bit of differentiation where there's time being spent understanding each province
05:36rather than grouping it as a, like all of us being very similar.
05:41So one of the messages that we're strongly delivering here is that we do have a diversified economy,
05:47that more than three-quarters of our economy is based on services.
05:53Only 22, 23% is goods.
05:57So when we talk about trade impacts, we're, you know, we're scaling from there.
06:03And then 10% is actually manufacturing.
06:07So yes, we're concerned about the impacts of what is happening in the trade space
06:12and the uncertainty and unsettledness of that space right here, right now.
06:15But there are other things going on in the Ontario economy because of its diverse nature
06:21that somewhat help buffer, et cetera, what is going on there.
06:26I would say that that unsettled nature of what is happening in that space does have implications
06:34in terms of, you know, individuals delaying decisions in terms of their sort of spending
06:41in consumer behavior, but also businesses, their spending and investment in their business.
06:46And so that delaying of decision-making, we're seeing that come through in the numbers
06:50that we're, you know, expecting to see for 2025 and into 2026,
06:56after which, you know, we should have a clearer picture of what we're facing.
07:01We're a big and diverse province.
07:03And so what we are seeing in the shorter term is that there has been signs of resilience
07:08and adaptation to this sort of uncertain backdrop where adjustments are being made.
07:14We do have 77% of our exports going to the U.S.
07:20So that is an exposure, but we also have 52% of our imports coming from the U.S.
07:27So there's a little bit of a natural hedge in that relationship.
07:31I'm not going to pretend that it's equal and offsetting, but so there's discussions to be had.
07:36And obviously, as those evolve, Ontario's economy will evolve with it.
07:42Stephen, maybe you want to pick this up.
07:44On the Alberta side of things, in the Alberta economy, there's always been some sort of exemption
07:49that existed for energy products, and that's given you some sort of immunisation
07:54from what's going on for now, at least at this point.
07:57Maybe talk about some of the headwinds that you see
08:00and how it's affected issuance for you in the last little while.
08:04No, for sure.
08:05And, you know, we're sort of the polar opposite of Ontario.
08:09Alberta is a concentrated economy.
08:11It's concentrated in the energy sector.
08:13It's not that the other sectors of the economy don't exist.
08:16You know, we have a large agricultural sector.
08:18We have tourism.
08:19We have trade.
08:20We have manufacturing.
08:21But none of it can compete with the scale and the scope of energy.
08:24You know, a full 20% directly is mining and oil extraction.
08:29But I would say a full third of the economy is heavily linked to the energy sector.
08:34So that makes us very volatile.
08:38It makes our revenue stream very volatile, for one,
08:40but it also makes our economic fortunes very volatile,
08:43heavily linked to the United States, obviously.
08:45I haven't updated the number recently,
08:48but it's somewhere around 95% of our energy exports go to the U.S.
08:53And so when we budgeted for the coming fiscal year in February,
08:57we were sort of peak tariff rhetoric.
09:01We weren't sure what to expect.
09:02We were told 25%.
09:03It turns out most of all of the energy exports that we're really concerned about
09:08are USMCA compliant or warranted and needed some paperwork filed.
09:13So we haven't seen any drop in demand for our product.
09:16And any increase in price that resulted from tariffs,
09:19which have not been really placed on the energy exports,
09:22would have been borne by the U.S. consumer, the U.S. refiner.
09:26So our fortunes are more tied to the trade in global energy.
09:35So there's a far larger impact on provincial revenues from WTI.
09:41So West Texas Intermediate is one of the inputs into our royalty regime.
09:45It's what the tax system is based on when we tax oil coming out of the ground.
09:50And so a $1 change in WTI over the course of the year amounts to a $750 billion change
09:59in the Alberta revenue picture.
10:02And that's like the full 1% of the budget, and that's just $1.
10:04And we've seen massive swings.
10:07So from our perspective, it's a matter of when we're talking about funding,
10:11just being far enough ahead of things that we don't have to fund as needed.
10:17But at the moment, we're very cash rich.
10:19So we're always well ahead of the program.
10:21But it's a matter of explaining to investors that that volatility isn't necessarily a weakness.
10:28I mean, it can lead to periods where we're running massive surpluses.
10:33So for the past five years, the provincial budget's been in a surplus position.
10:37And this is a very fiscally conservative government that's in power at the moment.
10:40So they've actually used it for debt repayment.
10:42You know, we're the first province in Canada in decades to actually be paying down debt.
10:46And then we're also investing into the Heritage Fund, which is our sovereign wealth fund.
10:50So the uses of our cash are a little different depending on where our fiscal situation is.
10:56So we're in deficit right now.
10:57That means there will be more anymore.
11:00But our balance sheet looks very much, very strong at the moment,
11:04very much different than the other provinces for sure.
11:06Right.
11:07And so in terms of issuance right now, you're around, you're expecting over 50 and you're on?
11:13We're like 12 and a half.
11:14You're 12 and a half, right.
11:16We're not expecting over 50, no.
11:17No?
11:18Oh dear.
11:18Our current number is $42.8 billion for this current fiscal year.
11:22And then if there's an opportunity, we may or may not do some further borrowing.
11:26Last year, we finished our borrowing program in the first week of January.
11:32And so had almost three months of additional time to do borrowing, what we would call pre-borrowing,
11:38pre-funding, whatever term you like to use for that.
11:42And I anticipate that we're just about, well, we've just finished the halfway mark of our fiscal year.
11:48And we're 74% funded on that $42.8 billion.
11:52So anticipate that we may look at a similar scenario where we're completed our set borrowing program in early January
11:59and have the following sort of two and a half or so months to do other borrowing if we choose and if the market is receptive.
12:08Okay, great.
12:09So let's talk, we're going quick, which is, it always goes quick.
12:15Time flies.
12:15But let's talk about, more about the, like some of the other trends we're seeing here.
12:20So in sovereign nations, there's a lot of, there's a lot more debt being issued in general.
12:25And maybe talk about also what's going on in terms of the steepening we're seeing in the curve,
12:30how that affects your respective strategies.
12:34We're, if I may.
12:36You go first.
12:37We're relatively agnostic on the curve.
12:40And look, we're a constant funder in the markets.
12:43You know, you look at our maturity profile, we've always got the stack of a few billion ahead of us.
12:49So if we start to pick and choose our points on the curves when it comes to issuance,
12:53it's gamesmanship that doesn't really amount to long-term cost savings for us.
12:58We're always going to be funding ourselves in the market.
12:59And in Canada, you know, the, for provinces, the 30-year part of the curve is quite liquid.
13:06And it's very attractive to us because it moves a lot of things out of the way, you know,
13:11particularly in periods of heavy financing.
13:14So when it comes to curve steepening, we're not traders or issuers.
13:21I don't think we play many games ahead of that.
13:24You know, hedging might buy you a few months' worth of savings.
13:27But in the long run, it all just comes back to what are your debt servicing costs.
13:31And the debt service bite in Alberta is quite low.
13:35So I would happily pay up a little to go up the curve and throw a few billion dollars out of the way for a few years.
13:42Great.
13:43And for you, Elizabeth?
13:45When you look at our program, I just mentioned $42.8 billion.
13:49And you look at a 52-week year, and then you take out the times where you're blacked out
13:54because there's an economic release coming, potentially a ratings event,
14:01holidays over the sort of the turn of the calendar year.
14:04You're really looking at a province that is on pace to issue roughly a billion dollars a week, every week you can.
14:12So when we talk about being constantly in the market, I would say that we are sort of the poster child for that.
14:20And so we're averaging in across the year.
14:23And so we're not, to Steve's point, picking moments in that sort of very precise way
14:29or trying to, I guess, beat the market.
14:32We do have mechanisms in-house with our debt management team that allow us to manage different aspects of our issuance
14:40and the overall yield of that issuance.
14:43And that's how I would say we manifest sort of a strategy in terms of terms and timing.
14:51But when you think about it, investors are very interested in your credit when yields are high and spreads are wide,
14:59which tends to be the exact opposite of when you would most like to issue your debt.
15:03So you do have to have some mechanisms in place to help you bridge between those two perspectives
15:09and get that issue into the market at a level that when it is fully baked on your end, you're also happy with.
15:17So I think you probably have some similar strategies as well.
15:21But really, it's an averaging through the year and then some management in the back.
15:24For us, you are the market.
15:26So we just lay off you.
15:28We're a bit of a benchmark, yes.
15:30That once a week thing sort of gives you that halo effect, yes.
15:34So I just want to touch on this before we finish up.
15:40But I just want to get your thoughts on generally what's going on with the federal situation
15:44and the amount of debt that's being projected there.
15:48Speaking with Stéphane this morning, he sees a $100 billion deficit.
15:52It's quite large.
15:54But a lot of these outlays are intended for fast-tracking large major projects,
15:59some of which are in your provinces, are starting to be on the list.
16:04Maybe just talk, if you could, just on how that impacts your provinces in general
16:11and whether you see some opportunities there moving forward.
16:15I mean, for us, it's largely an exogenous impact.
16:20Yes, $100 billion is a large deficit.
16:23Yes, the federal government is on a very different fiscal track than we are in Alberta,
16:27and they have a very different fiscal mindset.
16:30But that's a sovereign national government with an agenda.
16:34We would like to see more of those capital projects in Alberta, I'll tell you that.
16:39But if they're in the national interest, we're supportive of them.
16:43And, you know, Canada has a long way to go before running deficits the size that they're talking about
16:48is going to create an issue fiscally long-term.
16:53You know, and do they get downgraded if they run these for the next few years?
16:57Probably.
16:58But we used to be AAA, and we're not anymore.
17:02Changed after I joined.
17:03I don't think they're related.
17:06But so what, right?
17:08It's kind of my point.
17:10Canada has tremendous fiscal capacity.
17:11There's maybe nine AAAs in the world.
17:14They're not any better off than we are.
17:16And I think smartly spending the money on capital projects
17:20that genuinely change the structure of the country is money well spent.
17:24And to just add to that point, one of the discussion pieces is,
17:29so the projects in Alberta, let's say, as an example, and it's a pipeline,
17:34where's the steel for that pipeline coming from?
17:36Well, maybe from an Ontario steel plant.
17:38So I think we also have to be careful not to pigeonhole these projects
17:41as being specific to a very, like, to one province,
17:45because one of the things that's obviously under discussion
17:47is interprovincial trade barriers and making sure that we are working
17:50as a country, coast-to-coast rather than north-south,
17:55more of an east-west perspective on some of these things.
17:58And hopefully that's what percolates through as these new programs
18:02come under, under, underway.
18:06Great.
18:06So we've got 50 seconds left.
18:08I'm not sure I can get any more questions into you folks.
18:11But thanks very much for joining us.
18:13It's been a pleasure.
18:14Thanks very much, Eric.
18:15And thank you to Bloomberg and to any investors that are buying our bonds.
18:20We're delighted you're doing that,
18:21and we encourage you to keep doing that.
18:23Thank you so much.
18:24Thanks, everybody.
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