Canada Infra Bank’s first loan supports CDPQ’s light rail financing

The C$35bn federal agency provided C$1.28bn as the last piece of funding for CDPQ Infra’s Montreal express metropolitan light rail project.

The Canada Infrastructure Bank has provided its first project loan, committing C$1.28 billion ($980 million; €840 million) to help bring CDPQ Infra’s Montreal light rail development to financial close.

CIB’s financing is a 15-year senior secured loan at a 1 percent rate, which rises to 3 percent over the term length. The C$35 billion federal agency, which launched over the summer after first being announced by Prime Minister Justin Trudeau in 2015 as a way to support large-scale infrastructure projects, provided the last piece of funding needed to pay for the 67-kilometre Réseau express métropolitain (REM) light rail project.

“Public transit is one of our priority areas,” CIB chief executive Pierre Lavallee said in a statement. “Our role is to invest alongside private sector and institutional investors, and other public sector partners to facilitate the development of strategic projects.”

CDPQ Infra, the infrastructure investment arm of Canadian pension manager Caisse de dépôt et placement du Québec, began construction in April on the REM network – which has a total price tag of C$6.3 billion.

In addition to CIB’s C$1.28 billion loan, CDPQ Infra has invested C$2.95 billion, giving it a 70 percent stake in the project, and the Government of Quebec has committed C$1.28 billion for a 30 percent stake. Hydro-Québec, which will provide electricity for the rail system, committed C$295 million to the project and the Metropolitan Regional Transportation Authority provided C$512 million as payment to replace future revenues that CDPQ Infra would have received for land value capture.

CDPQ Infra is expected to make an 8.9 percent return on investment and the Government of Quebec a 3.7 percent return.

The project is notable for CDPQ Infra’s involvement from an early stage of development. Canadian pubic pensions are active investors in the country’s operating infrastructure, but it’s a new trend among larger funds to develop greenfield assets.

REM’s first trains are expected to be running in 2021. The light rail network will feature 26 stations in and around the Montreal metro area and is expected to be the world’s fourth largest transit system when completed.