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RPT-Fitch Rates New Zealand's 2030 Inflation-Linked Bond 'AA+(EXP)'
October 8, 2013 / 9:13 AM / 4 years ago

RPT-Fitch Rates New Zealand's 2030 Inflation-Linked Bond 'AA+(EXP)'

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Oct 8 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned New Zealand's forthcoming NZ-dollar-denominated inflation-linked bond, due 20 September 2030, an expected rating of 'AA+(EXP)'. The final rating is contingent on the receipt of final documentation conforming to information already received. The expected rating is in line with New Zealand's Long-Term Local Currency Issuer Default Rating (IDR) of 'AA+'/Stable. The Long-Term Foreign Currency IDR is 'AA'/Stable.

Key Rating Drivers

New Zealand's IDRs reflect the following key rating drivers:

- The Stable Outlook on the ratings balances the prospect of fiscal consolidation and stabilisation of public debt ratios against Fitch's expectation that already-high net external indebtedness will rise further over the forecast period, exacerbating a long-standing credit weakness;

- New Zealand's economic policy framework, level of development, and standards of governance rank among the world's strongest from a credit perspective, and warrant high-grade sovereign ratings. The sovereign has no history of debt default.

Rating Sensitivities

The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change.

The main factors, individually or collectively, that could lead to a positive rating action are:

- Further progress in fiscal consolidation leading to an outlook for sustained reductions in public debt ratios;

- A rebalancing of the economy that put New Zealand's net external debt (NXD) ratios on a sustainable downward path.

The main factors, individually or collectively, that could lead to a negative rating action are:

- A sharp and sustained rise in New Zealand's external borrowing costs that imposes a disruptive tightening on its monetary and credit conditions sufficient to have a durable negative impact on growth, employment, public finances, and the health of the banking system;

- A negative shock to the real economy with similar lasting adverse effects, exceeding the typical cyclical volatility of the economy;

- A wider and/or longer-lasting current account deficit than Fitch currently projects, leading to higher NXD ratios relative to peers.

Key Assumptions

The ratings and outlooks are sensitive to a number of assumptions:

- Fitch assumes the outlook for the global economy will remain broadly in line with the projections laid out in its September Global Economic Outlook;

- The ratings incorporate an assumption that New Zealand's savings and productivity performance do not undergo a sharp structural change relative to historic behaviour over the forecast period to 2015.

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