Ottawa could go further to boost access to capital for defence businesses, says BMO CEO

Bank of Montreal chief executive officer Darryl White says Ottawa should go further to boost access to capital for defence companies, as the lender works to enhance its strategy in the sector.

Canada’s biggest banks have been ramping up efforts to invest in and lend to burgeoning defence companies that have historically grappled with obtaining financing needed to scale. BMO said Wednesday it is expanding its defence sector growth strategy and announced the appointment of a new chair to co-ordinate those plans.

Moves by the federal government to accelerate procurement timelines and by Crown corporation Business Development Bank of Canada to inject billions of dollars into defence businesses have given large lenders more reassurance on taking risks in the sector.

However, Mr. White said, Ottawa should provide more measures that would make it easier to lend to small and medium-sized firms, including clearer procurement timelines, contract visibility and export certainty. His wish list includes government-backed risk-sharing tools, loan guarantees, and measures that attract more private-sector capital.

“This is easier said than done, I concede,” Mr. White said in an interview.

Banks look to lend to defence companies, but many lack the track record to qualify

“But they are possible in a situation like this, and I don’t think in the end access to capital is the primary issue. Capital will go where it’s welcome, and if it sees a return.”

Last month, BMO unveiled plans to deploy up to $70-billion in new capital over 10 years for sectors considered critical to Canada’s economic security and resilience, including defence.

Companies in the sector are able to access early-stage funding, but when they are ready to participate in government procurement processes and commercialize their products and services, they often hit a bottleneck in the search for growth capital. BMO’s strategy is aimed at breaking down this barrier, Mr. White said, adding that asset managers, venture capitalists and private equity, and other financial institutions should be part of these efforts.

BMO tapped Michael Bonner, head of the Canadian personal and business banking distribution group, as its enterprise chair of the Canadian defence sector. He will act as a liaison to government agencies and industry associations on defence-related financing, export credit and procurement matters. The bank’s defence and security adviser, retired Major-General David Fraser, will report to Mr. Bonner.

The bank is making the announcement as it launches a three-day conference in Toronto on Wednesday, focused on defence finance. Mr. White said it has been fielding rising demand from defence companies as Ottawa invests in the sector, particularly from businesses involved in infrastructure development.

In the next decade, the federal government projects $290-billion in total investment in defence-related infrastructure projects. It also expects $180-billion in total direct defence procurement, with 70 per cent bound for Canadian firms.

Canada’s goal of spending 5 per cent of annual gross domestic product by 2035 on its commitment to the North Atlantic Treaty Organization could generate about $150-billion in annual economic impact. That would boost annual growth by an average of about 0.2 percentage points over the next 10 years, according to a recent report by BMO.

CIBC commits $2-billion to help finance defence-related companies

“That’s a material pickup when you have an economy that moves along at 2-per-cent GDP growth over time, and you can add 20 basis points to it – that’s a pretty attractive opportunity that doesn’t come along very often,” Mr. White said.

Prime Minister Mark Carney has appealed for more foreign investment in sectors deemed critical to reinforce the country’s economy and reduce its dependence on the United States.

Since the federal government’s investment summit last month, Mr. White said he has seen mounting evidence of increasing interest from foreign investors.

“Have I seen my inbox get more active with people who are interested in investing in Canada? For sure, and that’s important evidence that I couldn’t have told you I had a year ago,” he said.

“I always warn people that there’s a gestation period that is not immaterial between that type of activity and the actual quote-unquote fancy deal headline that we ultimately see in publications, but pickup in activity, pickup in interest – you got it for sure.”