Biden and the oil sand vanguard: Inaugural credit action

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Biden's early decision to cut the Keystone XL pipeline project may have implications for Vanguard's and Norges Bank Investment Management’s (NBIM) large bond positions in the world's top oil sand producer, Province of Alberta (ALTA).

Following the cancellation, was the demand for economic sanctions on behalf of Canada versus the US as “leverage” to protect the province’s oil sand industry, dependent on US pipelines such as Keystone XL.

This in in our view a clear credit negative for ALTA as an issuer, both in terms of fundamental economics as well as reflecting apparently diminishing governance quality. Among other lenders to ALTA, we note Raiffeissen Bank (Austria) and UBS (Switzerland).

We believe their clients are less interested in allowing the ALTA oil tar sand spending spree to continue. Especially Raiffeissen’s position is large vis-à-vis what we would expect them to have competency to trade. Divestment might be slightly painful, but this would be most likely better than starting to lose domestic clients as a result of not divesting.

Further investors that we believe should actively revisit their ALTA exposure following the cut in the Keystone XL pipeline project include Allianz, Schroders, DNB and GPIF. We reiterate our view of ALTA climate based exclusions and that ALTA bonds should not be eligible for ECB repo purposes.

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