Indigenous-related project financing on a “steady upward trend,” reports Morningstar

In a report released on the fourth annual National Day for Truth and Reconciliation, the credit rating agency said Indigenous-related capital markets activity is on a steady upward trend with “considerable potential” for more.

“We have seen a gradual increase in capital markets activity by Indigenous-related organizations and we anticipate this segment of financing will grow significantly in the coming years, supported by increased federal and provincial government guarantees and other forms of support,” the Morningstar report states.

Better access to capital is facilitating economic development

Indigenous communities across Canada are showing growing interest in acquiring equity positions in major projects and infrastructure as a way to generate revenue and economic opportunity for their people.

But historically, one of the biggest barriers preventing Indigenous partners from pursuing equity ownership has been a lack of access to capital. Canada’s Indian Act prohibits First Nations from using their land as collateral, meaning Indigenous communities have struggled to access competitive interest rates through mainstream capital markets.

But the federal and provincial governments are increasingly getting on board with the need to provide Indigenous communities and organizations access to capital to facilitate economic development, Morningstar said.

The report identifies more than $13 billion in available federal and provincial programs, such as loan guarantees, which are leading to increased financing activities by Indigenous communities and groups.

“Significant growth potential” for financing activity

Morningstar pegs the value of Indigenous financing activity, including government loan guarantees, at almost $800 million annually over the past five years.

It also points out there are several high-profile transactions involving Indigenous communities on the horizon, including Ottawa’s planned sale of the Trans Mountain pipeline to Indigenous groups, TC Energy Corp.’s planned sale of its NGTL pipeline system to an Indigenous consortium, and the development of the Cedar LNG project by the Haisla Nation and Pembina Pipeline Corp.

“We believe that there is significant growth potential for Indigenous-related financings in the coming years,” Morningstar said, adding increased Indigenous participation on capital markets is a win-win for everyone.

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