Canada dollar rise may spur expansion abroad: UBS exec

TORONTO (Reuters) - Canada's soaring dollar could pressure struggling manufacturers and exporters to seek new markets, the chief investment banker for UBS AG's (UBSN.VX) Canadian arm said.

Alain Auclair, head of investment banking for UBS Securities Canada, said need or opportunity could drive companies to seek growth opportunities outside Canada as they emerge from the global economic crisis.

"If the dollar maintains itself where it is, or strengthens this will continue to add cost pressures," he told Reuters in an interview at the Swiss bank's offices in downtown Toronto.

"I do believe it forces Canadian companies to seriously consider where their operations are based and if they need to diversify geographically," he added.

The Canadian dollar hit its highest level in over 14 months on Wednesday, as investors exited U.S. currency investments and on continued evidence that Canada's economy has weathered the crisis better than most.

The currency's climb to near parity with its U.S. counterpart has sparked concern from the Bank of Canada, and Prime Minister Stephen Harper warned this week that too steep a rise could put the Canadian recovery at risk.

Exporters are already feeling the pinch and industry experts say salvation lies in using their stronger dollars to build operations locally in their export markets.

The muscular Canadian currency also presents a buying opportunity for firms that have long thought to expand to other jurisdictions, but were held at bay by costs.

"It certainly allows you to be growing in the U.S. or in other markets, and it just became less expensive for you to do so," said Auclair, whose bank has been operating in Canada since 1927.

Financial services operations, such as Canada's robust banks, are likely candidates to take advantage of the strong currency, Auclair said, potentially adding valuable human talent as struggling rivals are forced to pull back.

"As we come out of this recession, this financial crisis is forcing companies, having cut costs, to look at where the growth is going to come from," he said.

FINANCIAL MARKETS OPEN

Auclair also noted that capital markets have opened up, providing access to financing for quality companies after an extended drought. Lending is rising, albeit not at the highs of 2006 and 2007, and terms have been re-priced.

Auclair said certain sectors, like real estate, still had limited access to the bank market.

The oil and gas, mining and industrial sectors should remain strong as global demand strengthens, notably from China and India, he said.

Canada is a major producer of the commodities that are feeding infrastructure growth by the Asian giants, and has the largest concentration of mining equity in the world.

Because they are still bruised from the liquidity crunch, Auclair said companies would likely prefer to use equity capital where possible for acquisitions, in part to protect balance sheets, and to keep the door open to the debt market.

Private equity is seen raising its profile in markets as well as it emerges to deploy capital.

"If you can finance, you can acquire, and if the equity capital markets have reacted well, you can IPO, so all of that is sort of coming together, which is why I believe you are going to have more active markets," Auclair said.

"With strong capital debt markets, high yield and investment grade companies can make acquisitions. With the strong equity market, you can solidify your balance sheet or use it to grow your business, and if you add a receptive IPO market, well then you come full circle and you get more active and liquid markets."

($1=$1.03 Canadian) (Additional reporting by John McCrank; editing by Rob Wilson)