Indigenous-related capital markets activity set to grow ‘significantly’: report

Canada is expected to experience substantial growth in Indigenous-related project financing, according to a report from international credit rating agency Morningstar DBRS, released on Monday.

The report, published on the fourth annual National Day for Truth and Reconciliation, highlights a steady rise in capital markets activity connected to Indigenous organizations, with "considerable potential" for even more expansion.

“We have seen a gradual increase in capital markets activity by Indigenous-related organizations, and we anticipate this segment of financing will grow significantly in the coming years, supported by increased federal and provincial government guarantees and other forms of support,” the Morningstar report states.

Indigenous communities across the country are becoming increasingly interested in securing equity stakes in major projects and infrastructure as a means to generate revenue and create economic opportunities for their people.

However, historically, a major obstacle for Indigenous partners in pursuing equity ownership has been limited access to capital. The Indian Act prohibits First Nations from using their land as collateral, making it difficult for Indigenous communities to obtain competitive interest rates from mainstream financial institutions.

Morningstar noted that both federal and provincial governments are now recognizing the need to provide Indigenous communities with access to capital to support their economic development efforts.

The report highlights over $13 billion in available federal and provincial programs, such as loan guarantees, that are helping to increase financing opportunities for Indigenous communities and organizations.

Morningstar estimates that Indigenous financing activity, including government-backed loan guarantees, has amounted to nearly $800 million annually over the past five years.

The report also points to several high-profile transactions involving Indigenous communities that are upcoming. These include the federal government’s planned sale of the Trans Mountain pipeline to Indigenous groups, TC Energy Corp.’s sale of its NGTL pipeline system to an Indigenous consortium, and the Haisla Nation’s partnership with Pembina Pipeline Corp. in the development of the Cedar LNG project.

“We believe that there is significant growth potential for Indigenous-related financings in the coming years,” Morningstar said, emphasizing that greater Indigenous participation in capital markets benefits everyone.