TCorp up for the challenges ahead
New South Wales Treasury Corporation (TCorp)’s Sydney-based senior balance sheet manager, Gavin Sinnott, and head of funding and balance sheet, Fiona Trigona, address the state’s funding strategy in the context of a state government seeking to support economic recovery.
How does TCorp’s increased funding task for 2020/21 fit into the New South Wales (NSW) government’s objectives?
TRIGONA The NSW government has maintained its commitment to investment in infrastructure of A$110 billion over the next four years. It is focused on recovery and reform following COVID-19 and has committed to A$29 billion of funding toward meeting these objectives over five years.
TCorp’s funding depends on the projects being financed and the state’s economic outcomes, so the timing of the investment will affect the timing of the funding required while cash flows may change. Our funding task for this financial year is A$32 billion (US$24.5 billion), of which we had raised A$14 billion by 31 October 2020.
The government is also focused on increasing the assets in the state’s dedicated debt offset fund, the NSW Generation Fund. This fund is forecast to increase to A$72 billion over the next 10 years, not including proceeds from asset sales. As the fund grows, it will directly offset debt outstanding in the state.
What are TCorp’s main priorities in meeting its higher funding requirements?
SINNOTT One of our key strategic goals is to lengthen the state’s debt-maturity profile. Over the last year, the weighted-average life of TCorp’s liabilities increased to 6.6 years from 5.9 years. This was driven by offshore investor demand for ultra-long bonds, and we will look for opportunities further to increase issuance into these tenors.
TCorp’s issuance in the longer end now exceeds A$5 billion and is now attracting more domestic investors. However, we will need to see even more domestic investor interest in long-dated maturities before we syndicate 15-20 year tenors.
Our funding will maintain liquidity in our existing benchmark lines and ensure the integrity of our benchmark curve. We will also focus on increasing issuance in our sustainability-bond programme as we continue to diversify our investor base.
NSW has a number of labelled-bond-eligible projects are set to come online in the next few years. Can TCorp give an update on the development of its sustainability funding programme?
TRIGONA Late in 2020, we released our second NSW sustainability-bond annual report and updated the framework. TCorp is highly committed to issuing off the programme annually. Volume will depend on investor demand and the size of the asset pool.
In October 2020, we issued our third bond under the NSW sustainability-bond programme: a capped A$1.3 billion November 2030 green bond. This established an ESG [environmental, social and governance] curve for TCorp – the first for an Australian issuer – with an aggregate A$5.2 billion outstanding.
What is your read on the debt market’s path out of COVID-19?
TRIGONA Most commentators believe the pandemic has some way to go and this brings market volatility. As such, it is unclear what lies ahead for the debt market and there are likely to be further periods in which it will be more difficult for semi-government issuers to access debt funding.
TCorp is well positioned to weather market dislocation, having recovered well from the disruption of March and April 2020. We reopened the debt market, with the support of the Reserve Bank of Australia, and we will continue to be transparent to our investors and provide guidance about our funding plans.
We will issue when opportunities arise and we are currently well on track with our borrowing programme. We also maintain a liquidity portfolio that enables us to fund our clients for a period even when markets are dysfunctional.
SINNOTT We believe two key challenges are facing our industry – competition and sustainability. Governments and states need to raise debt to stimulate economies and fill revenue shortfalls and, as a result, there is heightened competition for investment dollars.
TCorp is well placed to compete on the global stage. The state has a strong credit rating and economy, and our investor marketing over the years has given us access to a wide range of global investors.
The other challenge is climate, sustainability and social issues. Investors are becoming increasingly focused on these areas as they recognise that climate and other social issues are important considerations for how their clients want them, as fund managers, to invest responsibly.
Again, TCorp is relatively well positioned. NSW has been a leader in issuing green and sustainability bonds and we will continue to innovate in this space to provide investors with a clear narrative around the state’s climate and sustainability strategy.
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