CVCA Central One-On-One: Q&A With Canada Infrastructure Bank President and CEO, Pierre Lavallée
With the arrival of Canada Infrastructure Bank’s President and CEO, Pierre Lavallée, on June 18, the bank has accelerated operations with Mr. Lavallée actively building up the bank’s team.
The brand-new Canada Infrastructure Bank (CIB) was officially proposed in the 2016 fall economic statement and will allocate the funds over 11 years for new, major infrastructure projects that will contribute to the country’s long-term economic growth while leveraging additional investments from the private sector.
Early indication from infrastructure players in Canada’s private capital community have noted the potential for the bank’s “ability to make equity investments, loans and loan guarantees, and to serve as a centre of excellence to help effectively structure and deliver transformative infrastructure projects.”
To get a better understanding of what we can expect from the CIB, the CVCA caught up with Pierre Lavallée, President and CEO, Canada Infrastructure Bank to discuss the bank, potential projects and opportunities in this exclusive to CVCA Central.
What is the size of the fund and mandate broadly?
Canada Infrastructure Bank is a crown corporation that works at an arm’s length from government. The bank’s management and independent board members are responsible for investing up to CAD $35 B in federal funding in new infrastructure projects that generate revenue and are in the public interest.
Our role is to complement existing funding models such as government funding and P3s, not to replace them.
We are currently recruiting for staff in our key investment and advisory functions. On the investment side, our mandate is to co-invest with and convene capital from private and institutional investors, using the flexibility of our capital to get more greenfield projects built and make limited public dollars go further. Our advisory service will work with public proponents of projects at an early stage to determine viability for private investment and will manage data and knowledge about Canadian infrastructure projects.
Is the fund return or impact-focused, or both?
Both. Investments made by Canada Infrastructure Bank will be structured to ensure public dollars go as far as possible, and the risks, rewards and costs are appropriately shared among parties.
We are impact focused, in that CIB-supported projects must be in the public interest. This means they will be aligned with governments’ infrastructure priorities, offer economic, social and environmental benefits, and contribute to infrastructure sustainability.
We are also return-focused, in that we are not supplying grants to projects. Our risk-return equation differs from the typical market expectations, however, and we are conscious to not crowd-out private investors.
What projects will you be looking at and how will you prioritize projects?
Our priority areas for investment are public transit, green infrastructure, and trade and transport.
Potential projects are wide-ranging and could include, for example:
- Public transit: bus rapid transit, light rail transit, subways, commuter and intercity rail;
- Green infra: wind, solar, hydro, geothermal and tidal power generation; energy storage; biomass and waste to energy; electricity transmission, distribution and metering; water and wastewater treatment; and district heating and cooling;
- Trade and transport: marine ports and terminals; airports; rail; ferries; resource roads, highways, bridges and service centres; communications.
As noted earlier, projects must be in the public interest, be revenue generating and able to provide the greatest benefits for Canadians. These criteria will guide our prioritization of projects.
What size of opportunity would be in your sweet spot?
The bank has a mandate to invest in projects that will attract private investment, and infrastructure investors and lenders are generally attracted to larger projects.
As the bank increases its capacity and expertise, we can consider how to support investments in smaller projects, potentially by bundling them to be attractive to investors.
How do you see partnering with the private investment industry in Canada?
In recent months, we have been engaging with prospective partners in both the public and private sectors to gather ideas that will help us fulfill our mandate.
We want to get private investors involved at an earlier stage in some infrastructure projects, to improve project scoping and structuring. By participating in planning and potentially in procurement, we believe private investors will bring innovation and expertise to infrastructure solutions.
We anticipate partnering with the private sector as a co-investor or co-lender in projects and sharing risks and rewards appropriately.
Do you have a goal of also attracting international investment?
Yes. For international investors, Canada is a great jurisdiction in which to invest and we are eager to talk to market participants about infrastructure opportunities here.
What type of risks do you see that you are better suited to take versus the private sector?
Our role is to ensure allocation of risks to those parties best able to manage them. We will require that private investors take on typical risks involved in greenfield projects; however, we may shoulder a larger proportion of these risks and/or take on unique risks atypical of privately financed projects (for example, technology risk).
We will structure investments to allocate risks and returns appropriately, create alignment across co-investors and provide required flexibility to build a project’s balance sheet.
If your role is de-risking mostly, what does that look like for private investors? What is the model or structure?
Our debt or equity investments may be at below-market terms or subordinated in order to attract private sector investment to projects that otherwise would not be viable. Any concession offered will be the minimum necessary to make the project viable.
Returns to private-sector partners will come from revenue that is linked to use of the asset. This differs from the typical Canadian P3 model where the public sector removes demand risk by making availability payments over the life of the project.
When should private infrastructure/equity investors reach out to you?
Part of our mandate is to receive and consider proposals from the private sector. We are developing a project intake process, recruiting for a Chief Investment Officer and hiring our investment and advisory teams. (Current positions are posted on our website, canadainfrastructurebank.ca, and our LinkedIn page here.)
While we are building capacity, we are open to discussing project ideas that meet the bank’s criteria. We are also interested in learning about potential interest in co-investing alongside CIB. Please contact me at firstname.lastname@example.org to discuss opportunities.
What is your diligence process?
Investment policies and processes are being developed by management and the board of directors, and our due diligence process will be no different than other infrastructure investors or lenders. We expect the diligence process to be rigorous and include a detailed assessment of the technical, financial, legal and regulatory factors in any given project, including risks and mitigants. The type and amount of risk taken will vary from project to project, depending on the unique characteristics of each project and the sector in which it operates.
The bank will determine if participation in a particular project is appropriate, based on the terms of the proposed transaction. Management will make investment recommendations to the investment committee of the board of directors for approval.