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BIG MONEY: 3 Canadian Pension Cross-Border Real Asset Deals

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Canadian pension institutional investors like OMERS and CPPIB continue their global search for long-duration, cash-flowing assets.

#1. Mexican Infrastructure

On April 13, Caisse de dépôt et placement du Québec (CDPQ) partnered with Mexican infrastructure company Empresas ICA, S.A.B. de C.V. by investing C$ 267.7 million in a joint venture for a 49% interest. Empresas ICA sold its stake and will hold 51% of the JV. Initially, this JV will operate four highway toll systems in Mexico. The investment portfolio includes a tunnel in Acapulco, the Mayab toll road, the Rio Verde-Ciudad Valles Highway and La Piedad bypass. In March 2008, a subsidiary of Empresas ICA acquired all of the equity of Consorcio del Mayab, S.A. de. C.V. (holder of the Mayab toll road) for 870 million MXN. The La Piedad bypass plays a role in connecting the Mexico City-Nogales and Querétaro-Ciudad Juárez highway corridors.

#2. Ivanhoé Cambridge Makes First Direct Investment in Australia

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Cassa Depositi e Prestiti Guides Companies to Find Opportunities in Naples Region

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The Cassa Depositi e Prestiti Group (CDP) and its investee companies, which include Fincantieri, Italgas, Snam, and Terna, have reached an agreement with the Municipality of Naples and the Authority of the Central Tyrrhenian Sea Port System. The entities will cooperate to provide for the development of Naples and its surrounding area. There will be a focus on helping the institutions and the community at large through financial support, real estate, and infrastructure investment, and support for local businesses. Signatories can help to provide technical expertise and planning, loans, and oversee public projects. Further, assistance and consulting will be provided, particularly as they relate to interventions and renegotiation of contract terms for the purposes of freeing up capital. Sustainable mobility will be a priority, with natural gas and biomethane forming the core fuels of the future. The group will be developing the ports, which will include the construction of emission-reducing structures.

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PIVOT: Federal Reserve Signals Zero Rate Hikes in 2019

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The Federal Reserve made a decision to hold interest rates steady and indicated that no more hikes will be coming for 2019. Federal Reserve Chairman Jay Powell addressed the media saying that the Chinese and European economies have slowed ‘substantially’. Despite low U.S. employment, Powell explained to the media that the U.S. has the lowest labor force participation rate among developed nations.

There were four interest rate hikes in 2018.

The Federal Reserve committee intends to conclude the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019. Essentially, the Federal Reserve is ending quantitative tightening in September 2019. Furthermore, the committee intends to slow the reduction of its holdings of Treasury securities by reducing the cap on monthly redemptions from the current level of US$ 30 billion to US$ 15 billion beginning in May 2019.

In a March 20, 2019 statement called “Balance Sheet Normalization Principles and Plans”, a portion of it reads, “The Committee intends to continue to allow its holdings of agency debt and agency mortgage-backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run.

Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities subject to a maximum amount of $20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS.

Principal payments from agency debt and agency MBS below the $20 billion maximum will initially be invested in Treasury securities across a range of maturities to roughly match the maturity composition of Treasury securities outstanding; the Committee will revisit this reinvestment plan in connection with its deliberations regarding the longer-run composition of the SOMA portfolio.

It continues to be the Committee’s view that limited sales of agency MBS might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public well in advance.”

source: Federal Reserve website

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Tencent Contemplates A.S. Watson Investment

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Tencent Holdings Limited is contemplating a bid to acquire Temasek Holdings’s ownership stake in A.S. Watson, an Asian beauty and health retailer. Temasek Holdings has been trying to offload its 10% stake in A.S. Watson. The price tag could be around US$ 3 billion.

Alibaba Group Holding Limited has also expressed interest in the A.S. Watson investment.

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