I see in the Canadian discussion of a DFI, in some ways, too much focus on how much money is being provided for initial capitalization. In some ways, that number could be almost any number. What is important is how much is provided in an annual lending portfolio.
I'd like us to look at the $300 million that has been mentioned over five years in the budget as the money to capitalize the overhead and operation of the institution for its first five years. We can then look at issuing debt to finance the lending portfolio, or the financing portfolio, for the insurance guarantees or equity placements of the institution. On that front, you mentioned that there is competition, but I think there would be enormous demand for the paper issued by EDC in the name of the DFI.
Why? Canada is now one of only about nine or 10 AAA credits in the world. We are a sought-after sovereign issuer. The DFI would have the full faith and backing of the Canadian government behind it. If you look at countries like the U.K., or even Mexico, they've been issuing at maturities of 50 to 100 years, in what is historically an incredibly low interest rate environment. That provides a context in which we would actually be able to raise private financing through bond issues at the kinds of maturities that are consistent with the long-horizon lending that the DFI would need to provide for projects that might not see substantial returns for five to 10 years. There's a really rare opportunity to align private and public capital markets at this point.
What share of financing for any one project or portfolio of projects would come from the DFI? It ought to be relatively small. Our financing ought to be catalytic. It ought to be the thing that tips a project toward being financeable from not being financeable. It ought to provide financing in that missing middle size of organization, and in the process of bringing a project to market from the initial angel investor stage to an IPO or a debt issuance, or some kind of partnership agreement where there are clear stages that need to be financed but are difficult to finance.
It may also partner with local governments in financing operations. It should be something that helps stimulate local engagement rather than simply providing outside financing.
When you look at some of the other major DFIs, the share that they provide in some projects can be as low as 5% or 10%, but what is important is that they often take the first loss risk. They have, in some ways, the least senior financing in the project, and by taking that risk out of the process of financing a project or an activity, they are able to catalyze private sector money to come in.
I see the private capital engagement here on two fronts. One is financing the equity, loan, guarantee, or insurance participation by the DFI itself, and the other is coming in beside that financing.