April 22, 2013 / 11:01 PM / in 5 years

Fitch: Port Sale Positive for New South Wales

LONDON, April 22 (Fitch) The agreement to privatise Port Botany and Port Kembla demonstrates New South Wales's commitment to limiting its debt burden, Fitch Ratings says. State finances remain exposed to the possibility of weaker-than-expected revenues, but the sale and likely reduction in borrowing needs is a positive step in addressing this. The privatisation of the two ports via the sale of 99-year leases will generate net proceeds of around AUD4.3bn (USD4.4bn). The money will be spent on infrastructure projects - including WestConnex, Pacific and Princess highway expansion and upgrades, amongst other projects - that would otherwise have been financed by borrowing. Reducing its reliance on debt to fund infrastructure investment bolsters the state government's commitment to returning the budget to surplus. NSW at the mid-year budget review is forecasting AUD45.5bn in capex over the next four years (including FY13); AUD12.8bn in new debt was forecast by the state to fund this infrastructure over the same period. The privatisation of the ports is netting the state AUD4.3bn that they can put towards funding capex without borrowing, which is a 34% reduction in new debt required over the forward estimates. Should additional asset sales aimed at funding infrastructure investment follow, this would underpin our expectation of an improvement in budgetary performance. NSW's operating margin rose to 10.2% in FY12 from 8.3% the previous year, as revenues rose more than expenditure. The capital balance came down in FY12, contributing to an operating surplus, but the projected increase in capex should reverse this. NSW continues to face fiscal pressure as weak consumer sentiment reduces both goods and services tax distribution from the federal government and revenue from some state-based taxes such as Stamp Duty. Nevertheless, we think that fiscal policies in place - including operational efficiencies, expenditure control and further privatisations - will see the budget deficit shrink in the next three years, and return to surplus in FY16. NSW's large capex programme reflects the need to address problems such as road congestion; which, if tackled successfully should bring economic benefits, and also help compensate for the winding-down of some federally funded stimulus over the forecast period. Funding infrastructure upgrades through more asset sales reduces the risk that some projects would be deferred or suspended if they do not meet budget forecasts and if weak economic conditions cause the current balance to fall. Fitch affirmed and withdrew NSW's 'AAA'/Stable rating on 21 March. Contact: Matt Wright Director +61 2 8256 0323 Fitch Australia Pty. Ltd. Level 15, 77 King Street, Sydney NSW 2000 Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Iselle Gonzalez, Sydney, +61 2 8256 0326, iselle.gonzalez@fitchratings.com Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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 PUBLIC WEBSITE '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.

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