LGFA expands funding base ahead of water reform demand

New Zealand’s water reforms are progressing, though key structural decisions are still to come. In the meantime, New Zealand Local Government Funding Agency (LGFA) is expanding its global presence in anticipation of increased funding need.

TIPLER Infrastructure investment is a major talking point in New Zealand, with water as a near-term focus. Has progress been made on the appropriate methods of financing the needed investment and is the capital market set up to support it?

ROBERTSON Local authorities will either keep water infrastructure in-house or own it through CCO [council- controlled organisation] infrastructure. We have confirmed our ability to finance water CCO assets that are either single- or multi-owned through local authorities.

At LGFA, we have also confirmed our ability to treat CCOs separately to their parent local authorities. We require uncalled capital from a local council, but we assess the two separately rather than at a group level.

This will allow us to lend to what will be more leveraged CCO entities. They will probably have lower, but still investment-grade, financial metrics than councils – which tend to be in the double- and single-A band.

A lot of investment spend has to happen with the water entities. If they can borrow more, rather than putting up water charges, they can take on more debt and make the investment intergenerational. This means the consumer is not taking as much of the hit in the present. We are waiting for councils to decide how they want to do it. There is a lot of interest in Watercare, which is separate to Auckland Council and the biggest single water entity. Watercare’s debt has to be kept separate from Auckland Council’s, so it will be an entity that has to fund in its own right.

A lot of investment spend has to happen with the water entities. If they can borrow more, rather than putting water charges up, they can take on more debt and make the investment intergenerational. This means the consumer is not taking as much of the hit.

LINDA ROBERTSON NEW ZEALAND LOCAL GOVERNMENT FUNDING AGENCY

SWISS LGFA recently completed some large transactions in offshore debt capital markets – is this related to infrastructure, bond maturities or both?

ROBERTSON We are getting ready for the increased funding we expect to see through the water entities by diversifying our funding base, but we are not pre-funding in anticipation. This year we have completed about NZ$5 billion (US$2.8 billion) for the financial year, 63 per cent of which has been offshore issuance.

Part of the reason for this is there is so much government stock coming out that the New Zealand dollar market is getting a bit crowded.

We are the second-largest New Zealand issuer and have diversified our funding for our immediate needs, but also so we are already established in larger offshore markets when we need to fund more.

Our first Australian dollar bond priced in 2023. Now we have ECP and EMTNs up and running too – in US dollars, Swiss francs and euros. We can issue in any of these currencies and also in Australian dollars.