Dominion Bond Rating Service has confirmed its ratings of the Caisse de dépôt et placement du Québec and CDP Financial Inc. at AAA.

DBRS says the operating environment of the Caisse has improved markedly. “Helped by a solid rally of the stock market and favourable hedging activities, returns rebounded to 15.2% in 2003, which was slightly better than the benchmark portfolio and a sharp improvement from the past two years of negative returns,” DBRS says. The rating agency reports that net assets reached their highest level on record in 2003, up by $11.7 billion to $89.4 billion vs a drop of $7.6 billion the year before.

“The improved performance was also likely attributable to the broad-based re-organization that took place at the Caisse during the year. Launched in late 2002 under the leadership of a new CEO, the reform led to changes in the management structure, stronger accountability and risk management practices and an increased focus organization-wide on risk/return tradeoffs to justify new investments.

DBRS says that management remains confident that the measures introduced in 2003 along with continued improvements in structure and processes will allow the Caisse to return among the top-performing funds. “Nonetheless, the institution has yet to demonstrate to depositors it can generate value for depositors by consistently delivering returns above market indexes. This is a considerable challenge for fund managers, especially in the current environment of lower equity risk premium, low interest rates, and increased market globalization, but one that the Caisse must overcome to maintain sound relationships with its depositors,” it cautions.

As for CDP Financial, DBRS says the short-term and long-term ratings are also confirmed at AAA, with stable trends. The ratings are a flow-through of the Caisse, which guarantees the full payment of principal and interest of CDP Financial’s debentures and commercial paper.

It notes that, in 2003, CDP Financial had a $750-million five-year debenture issue as part of its new $1.5-billion medium-term notes program. The subsidiary also launched its $3-billion commercial paper program, which had outstandings amounting to $2.4 billion at yearend. The new financing was largely used to replace existing debt within the real estate subsidiaries in order to diversify funding sources and reduce interest charges.