Infrastructure Bank to provide loans for Indigenous equity investment in major projects

Indigenous communities across Canada now have another avenue for achieving equity investment in infrastructure projects that will result in financial and social benefits for their members.

Last week, the Canada Infrastructure Bank (CIB) announced it would be providing equity loans ranging from $5 million to $100 million that would cover up to 90 per cent of a community’s equity in a project.

“It's a busy week…with lots of in-person meetings…(because) lots of communities (are) seeking ways to move forward with access to capital,” said Hillary Thatcher, managing director of investments with CIB.

Many of the chiefs who are in Ottawa this week for the Assembly of First Nations election of a new national chief have plans to meet with Thatcher.

“We've had a lot of really positive feedback and I think we've got a number of deals already in our pipeline that we're working on towards making an equity loan to communities. And I think that number will just keep growing quickly,” she said.

CIB will provide equity loans to communities to invest in projects in which the CIB is also investing.

“This is the policy cover that we were provided in the budget when the federal government gave us the authority to make these investments,” said Thatcher.

It’s not a limitation for Indigenous investment, she adds, because CIB’s five priority areas are wide ranging enough in green infrastructure, clean power, public transit, trade and transportation, and broadband infrastructure.

The program has been established in this manner, says Thatcher, because as CIB is already involved in the deal, the bank will already have done its due diligence in understanding the risks associated with the project.

“It's a caveat I'm hoping that at some point it gets lifted, but at the same time, I think it's a caveat so that we can start seeing what kinds of projects are out there…so that we can really build that book of business, build a case that there's a lot of projects out there,” she said.

CIB was provided the mandate in the 2023-24 federal budget. It’s taken until now to get the program “more fully defined,” says Thatcher, and that involved working with Indigenous communities and business stakeholders, and sharing with them CIB’s understanding of the market over the years and how CIB could contribute.

With CIB lending up to 90 per cent of an Indigenous community’s equity requirements in a project, it should mean the community won’t have to take out a bank loan or seek partnerships to fund its 10 per cent equity contribution. Those dollars could come from own source revenues, trust fund dollars, or other sources.

That 10 per cent, says Thatcher, represents the risk the community is taking in the project.

“We tried to push the yardsticks a little bit further and get all the way up to 90 per cent of a direct loan just to make it a little bit easier. Because we know that, on especially very large projects, 10 per cent can be a very significant amount of money to raise,” said Thatcher.

She adds that if communities need to turn to other lenders to get that 10 per cent, it will be easier for them because of CIB’s heavy equity contribution in the project.

CIB’s loan is structured to ensure that communities get some of the early equity distributions while serving the debt on their loan. In the majority of cases, communities will have up to 15 years to repay the loan at minimum Government of Canada interest rates.

Equity distributions, says Thatcher, will see the community use 75 per cent to service the debt, while holding on to 25 per cent for community benefit. This formula will be in place until the loan has been repaid.

“It's a little bit different than a bank loan, which typically requires you to make your full payments on the equity until it's serviced and then you get your distribution. This keeps the community fully engaged and it keeps them seeing some of those early awards, early distributions for taking on that risk,” said Thatcher.

Another unique aspect of the loan program is that communities have the option of becoming equity partners after construction. The construction aspect of a project is the riskier part, says Thatcher, as that is where delays and cost overruns can occur.

“Some communities don't want to take that construction risk and they really can't on behalf of their communities on some projects (because) they're seen as really risky,” she said.

CIB can provide communities with flexibility when it comes to that risk.

“If they're able to negotiate with their partners to bring their equity to the table post-construction, then we're able to lend it to them a little bit later. We lend it to them before the project is in full operation, but after construction so that they miss some of those risks associated with the project,” said Thatcher.

Thatcher points out that businesses and provincial corporations are prioritizing Indigenous ownership.

A March report issued by Fasken law firm says equity deals for Indigenous communities in the energy, mining and infrastructure sectors “are evolving.” Within the sample of Indigenous equity projects reviewed by Fasken, 25 per cent involved Indigenous participants that held majority or full ownership. The average equity interest for minority-owned projects was 21 per cent. This marked a significant increase over the average equity interest for minority-owned projects over the past 10-year period at 14.2 per cent.

Thatcher says CIB has $35 billion to invest in projects across the country with “a floor not a ceiling” of $1 billion earmarked for Indigenous investment. CIB already has $2 billion in Indigenous investment, a number she expects will continue to grow.

Involvement in the Canadian economy is something Indigenous communities have been wanting for at least the past decade, she says.

“It's just a really exciting time and we're thrilled to be a part of the overarching toolkit that's needed to make sure that Indigenous communities are included in Canada’s economy in a really meaningful way,” said Thatcher.

In the federal Liberal government’s fall economic statement last month, Finance Minister Chrystia Freeland announced that an Indigenous loan guarantee program would be developed to help facilitate Indigenous equity ownership in major projects in the natural resource sector. Next steps are to be announced in the 2024 budget.

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