LGFA’s bonds listing on the NZX debt market increases transparency of local government finances

Local Government New Zealand (LGNZ) congratulates New Zealand Local Government Funding Agency (LGFA) on its inaugural bond listing on the NZX today, putting in place further transparency for local government finances.

LGFA has stated it made the decision to list bonds on the NZX to provide greater access to a highly rated, liquid fixed income investment and to increase price transparency for all investors.

LGNZ President Lawrence Yule says “LGNZ has been working closely with LGFA to assist councils to improve their approach to debt management. This announcement is a positive step towards continuing to improve local government financial transparency.”

New Zealand councils’ ratings currently range from ‘AA’ to ‘A+’ which suggests a very strong to strong capacity to meet financial commitments. New Zealand councils tend to rate highly in credit ratings compared to their global peers because of the close relationship between the two-tiered central and local government and the institutional framework the sector operates under.

LGFA Chair Craig Stobo said investors are attracted to the bonds because of the underlying financial strength of the sector.

“They have an abundance of global investment opportunities available to them so it is a sign of confidence in the sector’s financial management that they are willing to invest in local government bonds,” said Mr Stobo.

“Investors and rating agencies value the transparency around Annual and Long Term Plans, the financial prudence benchmarking, pre-election reports and the high degree of public consultation. They acknowledge the sector’s level of debt is linked to their large infrastructure requirements but this reflects the infrastructure responsibilities facing councils and the funding of this investment by debt to ensure an intergenerational equity balance,” said Mr Stobo.

LGFA quick facts:

• The LGFA began issuing bonds to raise funds for local authorities in February 2012, having been established to reduce council borrowing costs by at least 30 basis points. After central government. It is the most economical borrower and currently has about $5.56 billion of bonds on issues at maturities ranging from December 2017 to April 2027. There are 46 councils that participate in its programmes, including 30 shareholding councils.

• Investor support for the sector is also evident with offshore institutional investors over the past year doubling their holdings of LGFA bonds from $700 million to $1.5 billion. Offshore investors now hold approximately 28 per cent of the LGFA bonds on issue.

• Our sector’s credit ratings rank alongside those of State of South Australia, Provinces of Ontario and Manitoba, most US states and large global cities such as Vancouver, Toronto, New York, Tokyo, Geneva and Prague.

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