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Canada green bond issuance seen recovering in 2024 after slump

By Maiya Keidan

TORONTO (Reuters) - Canadian green bond issuance is poised for a rebound this year as market conditions improve, after offerings more than halved last year to their lowest in four years, as higher interest rates and tight labour market hindered sustainable projects.

Canadian companies raised $5.7 billion via green bonds last year, down 58% from 2022. Canada's share of the global market for green bonds - a fixed-income instrument earmarked to raise money for climate and environmental projects - fell to 1.3% from a high of 4% in 2020, according to LSEG data.

"I think it's a blip more than anything," said Guillaume Poulin, managing director of debt capital markets at Desjardins Securities, noting high interest rates led issuers to delay funding while labor shortages made it tougher for projects to get off the ground.

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With the Bank of Canada widely expected to cut policy rates in the second half of this year and the government promising its next budget will attempt to create economic conditions to allow rates to come down, green bond offerings are expected to pick up pace this year.

"Over the next few weeks, we're expecting supply to resume meaningfully in Canada. We're getting slightly more calls and more and more interest in trying to figure out if it makes sense or not," Poulin added.

Desjardins ranked seventh for advisers to Canadian debt capital market deals in 2024 so far, according to data from Dealogic.

Green bond issuance began in Canada in 2014 with just three coming to market but has steadily risen over the years before the rough patch last year. The inclusion of nuclear power projects in the province of Ontario's green bond program this month is adding to market optimism for more ahead.

There has been a smattering of nuclear green bonds issued by Canadian corporations over the years and market participants say demand continues to grow as Canada, and the world, look to solutions for greener energy.

Bruce Power, Canada's only private sector nuclear generator, issued a green bond in 2021 in a global first for nuclear power, according to its website, while provincial government-owned Ontario Power Generation issued a C$300 million one in July 2022.

"In respect of climate change mitigation, you might see more green bonds issued now that nuclear is part of a lot of issuers' frameworks," said Jeremy Ozier, a partner at law firm Blake, Cassels & Graydon.

Entities like British Columbia Investment Management Corp's wholly-owned real estate business QuadReal Property Group say they plan to launch more green bonds as interest rates fall.

"We're a perfect example because the last bond issue we did was in February 2022 and we typically issue every year...and we haven't issued for two years because of the interest rate environment," said Tamara Lawson, chief financial officer at QuadReal.

QuadReal first issued a green bond in July 2020, followed by another one in March 2021 and the third in 2022.

"The idea is to return to it and we foresee all of our bond issues going forward to be green bonds because we have enough eligible expenditures going on that we anticipate all of our bond issues will be green bonds," said Lawson. In three to four years, all of QuadReal's bonds would probably be green, she said.

(Reporting by Maiya Keidan; Editing by Deepa Babington)