Native business bond issue announced

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The Bank of Montreal announced a landmark $500 million Native business bond issue at a recent conference in Vancouver. The precedent-setting financing is believed to be the largest Native bond financing in the world.

The bank expects to receive a full guarantee by the federal government.

"First Nations people require substantial capital for development projects, but the government's deficit makes outright grants more difficult to raise," said Ron Jamieson, vice president of the bank's Aboriginal banking group.

"This is a major breakthrough for Natives in Canada," said David Connelly, chief executive officer of the Inuvialuit.

The First Peoples Trust is expected to receive a tripe-A rating, the highest possible, which allows a low seven-per-cent borrowing cost, but government approval is likely to delay the launch until after the fall federal election.

The bank has been in negotiations with Ottawa since October. Finance Minister Don Mazankowski was very positive in a meeting a month ago, he said.

"The minister congratulated us on the initiative," said Jamieson.

The bond issue is modelled on the bank's 1988 Harvest Trust, a $400-million government guaranteed bond issue the bank underwrote to support prairie grain farmers. Jamieson noted the farmers' bond issue experienced a low default rate and he expects a similar success for the First Nations fund.

The fund is planned to finance housing, business and infrastructure projects and re-financing of existing Aboriginal capital corporations.

"There is an $800 million annual need for Native housing alone," said Jamieson, citing figures from the Canadian Mortgage and Housing Corp. in Ottawa.

The bank also noted the need to re-finance existing Aboriginal capital corporations.

"They can get funds at seven per-cent spread for profit and default, which is generous," Jamieson said.

Jamieson, himself a Six Nations Mohawk, noted that corporate and institutional investors are strong buyers of Canadian government-guaranteed bonds.

"The General Motors' and Xerox's of the world will snap up an issue like this." The fund is expected to sell out in one week, once it receives final government and regulatory approval.

U.S. Native business leaders remarked on the fund's significance.

"When a major bank gets involved with Native finance, that can start to open a lot of eyes and a lot of doors," said Arsenio Credo of Alaska Native Consultants, a Seattle-based specialist in Native finance.

The Tlingit businessman noted that few American Native bond issues have broken the $100 million barrier, despite tax-exempt status, which is favorable to investors.