TEXT: S&P Affirms New South Wales 'AAA/A-1+' Ratings; Outlook Stable

MELBOURNE (Standard & Poor's) Oct. 18, 2011-Standard & Poor's Ratings Services said today that it had affirmed its 'AAA/A-1+' ratings on the State of New South Wales and the state's central borrowing authority, Treasury Corp. of New South Wales. The outlook is stable.

The ratings on New South Wales reflect the strong institutional framework benefiting state governments in Australia, as well as New South Wales' strong economy, positive financial management, and excellent liquidity position. These strengths are partly offset by New South Wales' limited budgetary flexibility due to the concentration of taxing powers at the Federal level of government, similar to all Australian states; and the need to deliver a large capital-expenditure program.

The stable outlook reflects Standard & Poor's opinion that the New South Wales government will maintain a sound financial position by balancing its focus on infrastructure investment with cost savings and potentially with asset sales. We expect further revenue and expenditure measures, as well as more capital investments and funding sources to be announced in the government's year ending June 30, 2013 budget. We will continue to monitor the success, or otherwise, of the government's delivery of its savings measures.

"The ratings on the state are likely to come under pressure if there is weakening in the state's budgetary performance, particularly if the state's after-capital account deficit exceeds 10% of its operating revenues or its gross interest-burden exceeds 5% of operating revenues over two-to-three years," said Standard & Poor's credit analyst Anna Hughes.

Downward rating pressure could also emerge if New South Wales's net financial liabilities (net debt and unfunded superannuation) to operating revenues exceeds 120%-130%. In our view, a material increase in the state's contingent liabilities, for example through the support of Reliance Rail Finance Pty Ltd.'s liabilities, would also create downward pressure on the rating. The Reliance Rail consortium was granted a 30-year concession to manufacture, commission, and maintain 78 commuter trains for the Sydney rail network.