Exclusive-Canadian pension fund CPPI to issue first 'reverse inquiry' bond on investor demand

TORONTO (Reuters) - Canada's largest pension fund CPP Investments (CPPI) is set to raise C$500 million ($372 million) in its first "reverse inquiry" bond, a debt instrument that is issued in response to investor demand, a top official told Reuters.

The bond offer gives Canadian institutional investors a rare opportunity to buy into the pension manager's debt at an attractive coupon. The offer is unique as it is tailored according to the terms determined by the investors or bond dealers instead of an issuer.

It is the first such bond issued by a pension fund in Canada, and is popular among provinces tapping debt markets.

"What we are really attempting to do here is to provide investors greater flexibility by providing stronger voice in the program by providing revise inquiry," Sam Dorri, Managing Director, Financing CPPI to Reuters.

CPPI's three-year bond will open on Dec. 6 and offer a coupon of 3.95% with interest paid out twice a year, Dorri added. In the last couple of months, some bonds in Canada have paid a coupon between 3.95% to 6%, according to bond prospectus.

Royal Bank of Canada and CIBC are the underwriters to the offer, Dorri said.

Unlike regular bonds, the terms of CPPI's offer were determined by investors seeking to buy these debt.

CPPI's issuance is the latest bond offering in the fixed income market that is showing signs of revival as companies prepare to lock in their capital before the next rate hike by the Bank of Canada.

Pension funds such as CPPI issue debt as part of their risk management strategy. The proceeds are used towards private placements or refinance existing investments.

Earlier this year, CPPI issued regular bonds worth C$4 billion with coupon ranging from 2% to 3%, but the latest issuance is highest coupon in at least five years.

After a lull of 10 months, the Canadian corporate bond market has seen a revival. With a glut in the bond market, investors have snapped up the new highly rated issuances that has come with an attractive yield of 6%.

Other pension funds too have been active with their issuances. The Ontario Teachers Pension Plan issued a 10 year green bond worth C$1 billion with a 4.45% coupon in November this year.

($1 = 1.3456 Canadian dollars)

(Reporting by Divya Rajagopal; Editing by Stephen Coates)

By Divya Rajagopal