Canada Pension Plan Investment Board (CPPIB) has nearly funded its full year target, but hopes to remain active in the fourth quarter of 2023 in markets away from dollars.
Earlier this month, the triple-A rated issuer sold its first dollar benchmark this year, a $1.5bn 4.25% July 2028 bond, which could also be its only dollar benchmark this year, according to Sam Dorri, managing director, total fund management, at CPPIB.
“We tend to do one or two dollar benchmarks each year but have less issuance needs after raising a fair bit — $5.3bn — from three benchmarks and a private placement in 2022,” he said.
CPPIB is looking to borrow around C$15bn ($11.4bn) this year, in line with what it did in 2022. It has less than C$1bn left to raise but investors may be able to get their hands on more CPPIB paper in the future.
“The programme ramped up from C$12bn in 2021 and C$10bn in 2020 and we intend to keep it steady for a couple of years. If the fund grows further, we might get closer to C$18bn-C$20bn a year in due course,” Dorri said.
The issuer is hoping to refresh its euro curve early next year, after last raising €1bn in the single currency in January 2022.
Dorri said CPPIB has been monitoring the euro market but pricing was challenging this year because of the cross-currency basis swap spread. He added the issuer remains committed to this market and will continue to monitor the issuance conditions, with a plan to return to euros in 2024 in the early part of the year “when demand is typically most prominent”.
But while the euro market provides issuers the opportunity to go long, CPPIB — which had previously printed 15, 20 and 30 year deals — now has lower duration needs and is unlikely to be issuing at the very long end of the euro curve.
Dorri saw demand over the last 18 months in euros largely concentrated on the front-end of the curve, in three and five years.
“More recently however, we’re seeing investors price in rate cuts by the ECB starting next year,” he added. “If that turns out to be the case, we could see demand extend into the 10 year part of the curve, which might be something we could target.”
Liquid lines
With no concrete plan to issue in euros or dollars for the rest of 2023, CPPIB still may bring two or three additional transactions in the fourth quarter.
CPPIB has also actively funded in Canadian dollars, Australian dollars and sterling this year.
It sold some of the largest Kangaroo bonds in 2023. Its two new conventional lines in the currency — a three and a five year — were A$1.3bn and A$1.25bn in size, only short of A$1.5bn deals sold by the European Investment Bank and the World Bank. CPPIB has since tapped the latter for another A$350m.
Excluding taps, this year’s SSA Kangaroo bonds have an average size of A$523m, according to Dealogic.
In sterling too, CPPIB’s recent £1bn June 2025 bond was the joint second largest following KfW’s £1.25bn February 2028s. Its £750m deal from earlier in the year also surpassed the average size of £538m for SSA sterling benchmarks year-to-date.
Outside of its home market, Australian dollars proved to be the most cost competitive over the past 12 months, Dorri said, adding that the issuer has been focusing on building larger Kangaroo lines which have served it well.
“Our conventional issuance in this market has been at least A$1bn in size for the initial tranche and we have tapped some bonds up to A$1.35bn. This compares to some SSA issuers whose first tranches can be A$300m-A$500m,” he said.
“Our commitment to larger sizes has led to more demand from investors that want liquidity from the outset,” said Dorri, who added that CPPIB’s Australian investor base has grown, with domestic accounts accounting for half of the allocation in its most recent trade, compared to just a third in its first Kangaroo bond in 2022.
Similarly, in sterling, Dorri thought it valuable to pay 2bp-3bp extra to bring a more liquid £1bn line compared to printing a tighter £250m-£300m line.
“It’s a prudent investment from our perspective, as the larger more liquid size encourages more investors, creating further sustainability in our programme.”
