Caisse refuses to rule out further bond sales

The Caisse in June sold €750m euros ($1bn) in 3.5% bonds maturing in 2020 through its CDP Financial unit, the last step in a seven-month plan to replace short-term borrowings with longer-term debt. As of June 30, the Montreal- based Caisse, which manages Quebec's public pension plan, had net assets of C$135.8bn.

"We did the C$8bn that we set out to do," Sabia said in an interview at Caisse headquarters in Montreal. "We dealt with the most pressing problem. Whether or not down the road at some point we decide to do something else, that's possible. I won't necessarily rule that out."

The latest transactions mean that about 74% of the Caisse's sources of financing have maturities of more than two years, while 78% of its assets are investments such as real estate that the firm will hold for more than two years, Sabia said. Before the refinancing, only 20% of the borrowings were due in two years or more, while 80% of the assets were long-term, he said.

"We had this really big mismatch between sources and uses of funds," Sabia said. "That exposed us to a huge amount of refinancing risk. One of the things that this organisation learned in 2008 was that we can't always count on refinancing."

During the global financial crisis that followed Lehman Brothers Holding's bankruptcy, the Caisse sold equities, closed out futures contracts and reduced its foreign-exchange hedging amid a fall in the Canadian dollar. It eventually reported a record loss of C$39.8bn, or 25%, for 2008, including C$6.1bn in hedging-related losses.

After posting a 10% gain last year, the Caisse reported a 2.3% return in the first six months of 2010, led by its infrastructure and private-equity units.

Sabia, 57, said he expects the refinancing to allow the Caisse to seize investment opportunities more quickly than in the past.

"We live in a period of exaggerated response and disconnection between fundamentals and short-term market reactions," he said. "It takes very little to move markets. In this environment, what really matters is institutional agility. You need to be able to react to events and to do it quickly."

Sabia, the former CEO of Canadian telecommunications company BCE Inc., joined the Caisse in March 2009.

 

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• Caisse de Depot Placement de Quebec
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