Kāinga Ora evolves its funding and reporting
Nearly three years since Kāinga Ora – Homes and Communities’ return to public funding markets, the agency is settling into a mature issuance rhythm as well as leading the New Zealand market on sustainability reporting. Kāinga Ora’s Wellington-based treasurer, Sam Direen, discusses its evolution.
What commitments are in place for investment in public housing?
The New Zealand government announced plans to deliver an additional 8,000 new homes by June 2024 as part of last year’s budget, made up of 6,000 state houses and 2,000 transitional houses.
Kāinga Ora is responsible for delivering around 70 per cent of this total, which equates to more than 2,000 homes per year on top of existing commitments. The government is also reviewing market settings to provide more help to first-home buyers and innovative ideas to increase the supply of affordable homes.
Kāinga Ora re-entered capital markets in 2018 with a mandate to deliver funding for invigorated government housing investment. What has been the benefit of an independent funding body?
We have experienced several benefits, consistent with similar issuers here and abroad. One of the most important is that independence helps us manage our stewardship responsibilities. We have more than NZ$30 billion (US$21.6 billion) of assets, many in desperate need of renewal, so it helps align our financing with the management of this asset base.
Being outside the annual appropriation cycle also puts us in a better negotiating position with suppliers. For example, multiyear construction partnership agreements saved us NZ$6 million in 2018/19 and NZ$35 million in 2019/20.
We also value the flexibility of market access, meaning we can take advantage of acquisition opportunities quickly and therefore provide housing for people in need more rapidly than alternatives.
Commercial discipline is another benefit that stands out when moving from nonmarket to market financing. Sophisticated market participants asking good questions and holding us to account is a powerful tool to ensure commitments from the business are honoured and that we continuously improve our reporting. The fact that we are a programmatic issuer of ESG-labelled bonds only adds to this discipline and benefit.
Kāinga Ora released its second annual Sustainability Financing Impact Report in November 2020. How was this received?
Our inaugural report covered only around three months, given the first sustainable-bond issue occurred near the end of the reporting period. The experience served as a useful warning that we needed to increase resources for the next edition.
Jason Bligh joined us on contract – he is now principal treasury adviser on a permanent basis – to produce the report. It reflects our responsibility to be net carbon neutral by 2050 through the publication of a preliminary carbon-emissions profile and identification of key operational risk areas.
Initiatives such as commitments to green buildings and progress around construction-waste diversion initiatives are also outlined in the report, building considerably on last year’s edition.
This type of reporting is a big focus in markets but actually we do not get a lot of feedback on it. We would like to hear from people who have read it. We want to know if we are hitting the mark.
What are the plans for the new funding methods introduced in 2020, specifically the tender programme and issuance at the long end and in inflation-linked format?
Introducing the tender programme late in 2020 followed two-and-a-half years of growing the investor base, establishing points on the curve and building liquidity almost exclusively through syndicated debt issuance.
The benefits of tendering are more regular supply for the market, increased secondary activity and price transparency, and another angle for us to assess the performance of our primary dealers for the purpose of invitations to syndicated transactions.
We expect around half our issuance to be tendered with the remainder done through syndication. The first two tenders have been well received, with four-times cover and pricing below pre-tender levels.
We want to build our nominal bond curve in a way that makes sense for us as a strategic issuer with a focus on New Zealand dollar bonds. This does not necessarily mean going as far out as we can on the nominal curve. However, if conditions are suitable to launch a longer-dated bond that can be reliably offered at tenders through the cycle we would explore this.
We also see a role for inflation-indexed bonds in the portfolio given the benefits they provide us. We will continue to look for opportunities to develop this product.
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