Maple market helps foreign companies access Canadian debt markets and helps Canadian investors diversify
The Maple Market
The Maple market is a forum that allows non-Canadian issuers to place Canadian-dollar debt with Canadian investors. In 2005, the federal government announced it was removing the foreign property limit that restricted Canadian investors’ retirement and pension accounts to no more than 30% in foreign assets. The market grew quickly to include many financial and SSA (supranationals, sovereigns and agencies) issuers, until the credit crisis in 2007-2009 ground Maple market issuance to a halt. What re-emerged after the credit crisis was a much smaller Maple market that priced out most SSA issuers and was focused on financial and non-financial corporate issuers.
Benefits to Issuers
There are several reasons why an issuer would want to go into Canada using the Maple market format. The issuer may want to diversify its investor base or the currency of issuance. Although it’s not as common, the issuer could also raise funds at a level that is better than its home market.
The company could also use the Maple market to fund one or more of its Canadian subsidiaries, without becoming a reporting issuer in Canada. Typically, a company would become a reporting issuer in Canada because its equity is listed on one of Canada’s stock exchanges, but being a reporting issuer is a time consuming and expensive proposition, and one companies tend to steer clear of unless they deem it absolutely necessary.
The form of issuance in the Maple market is private placement using a wrap, whereby the issuer uses its foreign shelf documents to issue off of. As a private placement, the issue can only be sold to accredited investors.
Benefits to Investors
Investors would buy a Maple bond either for diversification of an industry, issuer or term they can’t buy in the domestic market.
Maple issuers wouldn’t generally issue a new Maple bond at a level that’s cheaper than in their home market. These bonds can trade in the secondary market at levels that are both more expensive and cheaper (on a swapped basis) than what they would cost on the issuer’s home market.
To take advantage of both cheap and expensive trading levels, investors can sell when the bonds are expensive and buy when they’re cheap. They should keep in mind, however, that Maples aren’t as liquid as domestic bonds because they’re not in the main part of the domestic bond index (the DEX index in Canada) and they generally have a smaller investor base.
Role of the Maple Market in Canada
The Maple market is a very useful tool for both issuers and investors in Canada. Although the market represents a very small part of the debt market in Canada, the Canadian corporate market needs more issuance and better diversification. The Maple market in Canada meets both of those needs well.
Article by Brad Meiers, Corporate Debt Specialist