articles Ratings /ratings/en/research/articles/210222-credit-faq-why-we-upgraded-11-new-zealand-public-entities-11847772 content esgSubNav
Log in to other products

 /


Looking for more?

In This List
COMMENTS

Credit FAQ: Why We Upgraded 11 New Zealand Public Entities

COMMENTS

COVID-19 Impact: Key Takeaways From Our Articles

COMMENTS

Sovereign Ratings Score Snapshot

COMMENTS

A Look Back At How The COVID-19 Pandemic Affected Creditworthiness Globally

COMMENTS

Local Government Debt 2021: COVID Aftershocks Push German And Austrian LRGs Into Heavy Borrowing, But Not Swiss Peers


Credit FAQ: Why We Upgraded 11 New Zealand Public Entities

We believe the credit quality of the New Zealand central government is rising. This has lifted the ratings on several local councils and public entities. On Feb. 22, 2021, we raised the ratings on the New Zealand sovereign, reflecting its quick economic recovery after the COVID-19 pandemic (see "New Zealand Ratings Raised To 'AA+' FC And 'AAA' LC As Pandemic Risks Moderate; Outlook Stable," published Feb. 22, 2021). We also raised our ratings on New Zealand Local Government Funding Agency Ltd., Kainga Ora-Homes and Communities (Kainga Ora), six local New Zealand councils, and three other government-related entities (GREs).

Frequently Asked Questions

Why did you upgrade the New Zealand sovereign?

We believe New Zealand is recovering quicker than most advanced economies because the country has been able to contain the spread of COVID-19 better than most others. This provides us with better clarity over the extent of the pandemic's damage to the government's balance sheet.

We forecast real GDP to grow at about 3.2% per year between fiscal years 2022 and 2024. We expect the New Zealand sovereign's fiscal deficits will narrow during the next few years. Its debt levels compare favorably to similarly rated peers and support its credit ratings, even if they are higher than in the past.

We now believe that the government's credit metrics can withstand potential damage from negative shocks to the economy, including a possible weakening of the real estate market, and its fiscal position at the 'AA+' rating level. Therefore, we raised the long-term foreign and local currency ratings on the New Zealand sovereign (the Crown) by one notch each to 'AA+' and 'AAA', respectively.

What's behind the upgrades of four Crown entities?

We raised the long-term ratings on four Crown GREs (see table 1). These upgrades are directly driven by the rating action on the New Zealand sovereign. This is because we believe the Crown is likely to provide extraordinary support to these entities during a stress scenario.

  • Kainga Ora is a Crown agency and provides social housing services to more than 189,000 people, or 4% of the national population.
  • Housing New Zealand Ltd. is Kainga Ora's main operating subsidiary, accounting for roughly 97% of the group's assets.
  • New Zealand Local Government Funding Agency Ltd. (LGFA) is a public-sector funding agency that raises debt on behalf of the vast majority of New Zealand's councils.
  • Transpower New Zealand Ltd. is the sole and monopoly owner and operator of the country's regulated electricity transmission network.

Table 1

Entity Rating at Feb. 22, 2021 Previous Rating

Kainga Ora-Homes and Communities

Foreign Currency AA+/Stable/A-1+ Foreign Currency AA/Positive/A-1+
Local Currency AAA/Stable/A-1+ Local Currency AA+/Positive/A-1+

Housing New Zealand Ltd.

Foreign Currency AA+/Stable/A-1+ Foreign Currency AA/Positive/A-1+
Local Currency AAA/Stable/A-1+ Local Currency AA+/Positive/A-1+

New Zealand Local Government Funding Agency Ltd.

Foreign Currency AA+/Stable/A-1+ Foreign Currency AA/Positive/A-1+
Local Currency AAA/Stable/A-1+ Local Currency AA+/Positive/A-1+

Transpower New Zealand Ltd.

Local Currency AA/Stable/A-1+ Local Currency AA-/Positive/A-1+
Why did your ratings on six local councils benefit from a higher rating on New Zealand?

The underlying credit strength of the local councils was key to their upgrades. We raised the long-term ratings on six local councils and WRC Holdings Ltd. (see table 2). These upgrades reflect the rating action on the New Zealand sovereign and the very strong stand-alone credit profiles (SACPs) of these councils at 'aa+'. The action on WRC Holdings Ltd. reflects the integral link and critical role it has for Greater Wellington Regional Council. These six councils' SACPs were, until today, higher than the long-term foreign currency credit rating on New Zealand.

Table 2

Entity Rating at Feb. 22, 2021 Previous Rating

Greater Wellington Regional Council

AA+/Stable/A-1+ AA/Positive/A-1+

Marlborough District Council

AA+/Stable/A-1+ AA/Positive/A-1+

New Plymouth District Council

AA+/Stable/A-1+ AA/Positive/A-1+

Taupo District Council

AA+/Stable/A-1+ AA/Positive/A-1+

Wellington City Council

AA+/Stable/A-1+ AA/Positive/A-1+

Whangarei District Council

AA+/Stable/A-1+ AA/Positive/A-1+

WRC Holdings Ltd.

AA+/Stable/A-1+ AA/Positive/A-1+

We don't believe local councils in New Zealand, or many countries, should be rated higher than the sovereign. This is because, in our view, councils could not maintain stronger credit characteristics than the sovereign in a sovereign default scenario. During such scenarios we believe many councils' credit metrics would deteriorate in line with those of the sovereign.

Further, we believe councils lack the ability to prevent negative intervention from the sovereign. Negative intervention could occur via increased responsibilities without additional revenues. New Zealand local councils are established under the Local Government Act and are not protected under a constitution like other jurisdictions which provide stronger protections and autonomy of subnational governments.

The WRC Holdings Ltd. upgrade was a direct follow-on from the upgrade of its owner, Greater Wellington.

Why weren't other local council credit ratings affected?

Unlike the local councils mentioned in Table 2, the other 18 New Zealand councils we rate don't have the same underlying credit strength. While these councils are highly rated between 'AA' and 'A+' they were not capped by the New Zealand sovereign 'AA' foreign currency rating. Therefore, these ratings were unaffected by the upgrade of the sovereign.

This includes Western Bay of Plenty District Council (AA/Positive/A-1+). While Western Bay's credit rating and outlook were the same as the New Zealand sovereign, its SACP of 'aa' wasn't higher than the sovereign foreign currency rating. Further, its positive outlook reflected its own underlying credit strength.

S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research

  • New Zealand Ratings Raised To 'AA+' FC And 'AAA' LC As Pandemic Risks Moderate; Outlook Stable, Feb. 22, 2021
  • New Zealand Local Government Funding Agency Ltd. Ratings Raised After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • Kainga Ora-Homes And Communities Ratings Raised After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • Housing New Zealand Ltd. Ratings Raised After Similar Action On Parent Kainga Ora; Outlook Stable, Feb. 22, 2021
  • Transpower New Zealand Rating Raised To 'AA' From 'AA- After Sovereign Action; Outlook Stable, Feb. 22, 2021
  • Greater Wellington Regional Council Long-Term Rating Raised To 'AA+' After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • Marlborough District Council Long-Term Rating Raised To 'AA+' After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • New Plymouth District Council RU Long-Term Rating Raised To 'AA+' After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • Taupo District Council Long-Term Rating Raised To 'AA+' After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • Wellington City Council Long-Term Rating Raised To 'AA+' After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • Whangarei District Council Long-Term Rating Raised To 'AA+' After Similar Action On New Zealand; Outlook Stable, Feb. 22, 2021
  • WRC Holdings Ltd. Long-Term Rating Raised To 'AA+' After Similar Action On Parent; Outlook Stable, Feb. 22, 2021

This report does not constitute a rating action.

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

Primary Credit Analyst:Anthony Walker, Melbourne + 61 3 9631 2019;
anthony.walker@spglobal.com
Secondary Contacts:Martin J Foo, Melbourne + 61 3 9631 2016;
martin.foo@spglobal.com
Parvathy Iyer, Melbourne + 61 3 9631 2034;
parvathy.iyer@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back