August 23, 2010
Sector: Experts agree: David Hay’s comment regarding CIBC’s investment in nuclear project purely speculative
Is this the dawn of a new era of nuclear investment in Canada?
The former head of NB Power, soon to be installed as vice-chairman with CIBC’s investment banking team in Toronto, said in a recent interview that the bank might consider investing in a project such as the second New Brunswick reactor Areva Inc. is floating.
“These are enormous capital requirement projects, so I would hope that we’d be able to provide some capital to a project like that, you know, as it gets nearer to fruition,” said David Hay, who will join the Canadian Imperial Bank of Commerce (TSX:CM, NYSE:CM) on Sept. 7.
But energy analyst Tom Adams said in an interview these comments are likely “extremely speculative.”
When it comes to the utility sector, Adams said, “The banks are very active in marketing securities and offering loans – this is a big area of business for them and Mr. Hay, because of his background, has a special insight into the utility sector, what its borrowing needs are going to be, and how to manage them.”
But in terms of direct investment in nuclear projects, he said, “I don’t take these comments from him about potential investments in what is, at this stage, a speculative Areva reactor, to be particularly material.”
Adams said the prospect of investment by a large bank into a merchant nuclear plant, “a plant that’s created on a stand-alone basis and is selling its power into the market,” is “extremely remote at this point.”
Canadian banks have long been involved with the nuclear industry in Canada, according to Adams. However, he said they have gone into those projects “shielded from the consequences” by loan guarantees and other protections from governments, which have almost always been involved in Canadian nuclear projects.
“The repayment record is outstanding for those investments because they’re all taxpayer guaranteed,” Adams said.
Bruce Power in Ontario, Canada’s first privately owned nuclear generator, is owned by a handful of private investors.
Norm Rubin, the director of nuclear research at Energy Probe, said it’s conceivable that banks were involved as “lenders or facilitators,” in that project but said he does not think any were involved as direct investors.
As for the prospect of CIBC investing in a reactor project with Areva in New Brunswick, Rubin too is unconvinced.
“Maybe CIBC will join the list of gutsy nuclear cowboys that used to have money – I hope not, you know, we need banks in Canada,” he said.
Rubin said that nuclear projects have a track record of disappointing investors.
“This is a technology whose capacity to break your heart is almost unlimited and I think most investors know that.”
Toby Couture, an energy analyst now based out of London, England, said in an email that he takes Hay’s comments to mean CIBC would do its due diligence, examine the business case and consider whether investment makes sense.
“As I see it, no bank is going to invest in nuclear projects in North America without corresponding guarantees similar to those being offered in the U.S. – loan guarantees, guarantees on the power purchase agreement and so on,” Couture said.