Fitch: New Zealand Subnational Ratings Still Underpinned by Institutional Framework

Sun May 25, 2014 6:31pm EDT

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Institutional Framework for New Zealand Subnationals here SYDNEY, May 25 (Fitch) Fitch Ratings says in a newly-published report that the overall strength of the New Zealand institutional framework remains a major positive credit factor for subnationals. The positive factors within the framework focus on substantial disclosure, including full accruals-based balance sheet, income statement, cash flow and 10-year rolling long-term plan which sets out revenue, expenditure and debt projections. It is a requirement that this plan be updated on a regular basis. The reporting of financials is in line with IFRS, with all budgetary and financial information being readily and promptly available. Fitch considers this level of disclosure and transparency to be optimal and compares very favourably with international peers. There have been positive enhancements to the control and supervision of the subnationals with the Minister of Local Government powers increasing dramatically. The Amendment Act 2012 to the Local Government Act 2002, outlines six key powers the minister now has when considering whether to intervene in a council's activities. These powers gradually increase, depending on the seriousness of the issue. Furthermore, lenders are protected by the local authority's ability to charge any assets to secure borrowings, including property rates via a debenture. This allows for high levels of recovery. The report also highlights some weaknesses including lack of prudential borrowing regulations. This could include maximum debt to operating revenues and maximum debt servicing ratios, which allows for a more formal overall control by the central government, with regards to the level of borrowing by local councils. The government has introduced new regulations that require all councils to disclose performance against benchmarks in their annual reports from FY14 onwards. There is also no fiscal equalisation system in place, which would allow the weaker councils to improve their overall revenues. This is mitigated by the fact that the majority of revenues such as property rates, are less correlated to the local socio-economic profile. The special report, entitled 'Institutional Framework for New Zealand Subnationals' is one in a series of Fitch's reports examining the institutional frameworks for subnationals in various countries which are available on the agency's website at www.fitchratings.com. Contacts: Matthew Wright Director +61 2 8256 0323 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 Fernando Mayorga Managing Director +34 93 323 8407 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0325, Email: Leni.Vu@fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and 'Local and Regional Governments Rating Criteria', dated 23 April 2014, are available on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria - Outside the United States here Institutional Framework For New Zealand Subnationals here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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