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Fitch Assigns 'AA' Rating to Public Trust; Outlook Stable
May 26, 2017 / 7:20 AM / 7 months ago

Fitch Assigns 'AA' Rating to Public Trust; Outlook Stable

(The following statement was released by the rating agency) SYDNEY, May 26 (Fitch) Fitch Ratings has assigned a Long-Term Local-Currency Issuer Default Rating (IDR) of 'AA' to New Zealand's Public Trust. The Outlook is Stable. Fitch has classified Public Trust as a credit-linked public-sector entity under its Rating of Public-Sector Entities criteria. This is attributable to Fitch's assessment of the entity's legal status, control and oversight as strong; its strategic importance and integration as weaker. As a result, Public Trust is rated one notch below the New Zealand sovereign's Long-Term Local-Currency IDR (AA+/Stable). Fitch believes that support from the New Zealand government would be forthcoming, if needed. KEY RATING DRIVERS Legal Status Attribute Assessed as Stronger: Public Trust is a Crown entity and is 100%-owned by the New Zealand sovereign. The entity is established and regulated under the Public Trust Act 2001 and the Crown Entities Act 2004. It can only be dissolved by legislation and cannot be declared insolvent or wound up. Under current legislation, the government must meet any deficiency in Public Trust's common fund out of public money. This provides a Crown guarantee to monies held by Public Trust for estates, private training enterprises and other customers. However, we do not believe that this materially increases the state's propensity to support Public Trust, if needed, given the nature of the services provided and status as a Crown entity. There is precedent of the Crown providing support to Public Trust, other statutory entities and privately owned entities to reduce the cost to taxpayers and minimise disruption to the wider economy. Control Attribute Assessed as Stronger In managing and administering estates, and in fulfilling any other fiduciary obligations, Public Trust is to act in an independent manner free from any direction or other instruction from the Crown, but must act within the terms of its legislation. The Minister of Justice appoints and removes board members and the board is responsible for appointing the chief executive, who is not allowed to be a board member. A financial report is required annually and is published after being presented to parliament by the minister. The board provides the Minister of Justice with formal reports on a quarterly basis and on an ad hoc basis as matters of significance arise, and the Minister of Finance can request additional reporting at any time. The New Zealand Auditor General is responsible for auditing Public Trust and has outsourced this to Ernst and Young. Public Trust may not borrow without the prior written consent of the Minister of Finance and we do not expect it to raise any wholesale debt in the future. The minister is able to make an advance should Public Trust have insufficient funds to meet its liabilities and commitments, with Public Trust required to repay these funds as soon as it is able. Strategic Importance Attribute Assessed as Weaker Public Trust provides key social services in addition to commercial services, such as the provision of trust and estate management services to retail and commercial clients. These social services, which include managing the financial affairs of around 1,200 incapacitated people, made up only 3% of net revenue in the financial year ending-June 2016, but are enshrined within legislation and cannot be interrupted or suspended without a change in legislation. We believe the social and political consequences of an interruption or suspension of the non-commercial services would be significant given the services support incapacitated New Zealanders. Public Trust has refocused on operating as a trust business and stopped providing residential mortgages in 2012. The remaining mortgage portfolio was sold in June 2016 and Public Trust no longer accepts deposits unless it has a fiduciary relationship with the customer. Public Trust implemented a new operating platform to support efficiency and growth and reduce potential IT failure by decommissioning outdated and unsupported technology. In the long term, the government could privatise part of Public Trust, for example, the commercial part of its business. However, the process would be lengthy and require legislative change, and the Minister of Justice would require a mandate for change that appears absent from public debate. Integration Attribute Assessed as Weaker The New Zealand Treasury publishes information relating to Crown entities, including estimates of appropriations. This provides a minister with authority to incur expenditure and establishes the maximum expense or liability that can be incurred. Public Trust, as a Crown entity, is included in the New Zealand sovereign's financial statements and detailed separately in the segmental analysis section of the notes. Public Trust has received capital injections in the past (NZD50 million in 2008 and 2009 as a result of losses in its investment and mortgage portfolios), but does not receive any on an ongoing basis, as is tasked to operate in a commercially viable manner. Public Trust does not receive any subsidies, but is remunerated under a service agreement with the Ministry of Justice for the provision of non-commercial services. RATING SENSITIVITIES Public Trust's rating is credit-linked to the Long-Term Local-Currency IDR of New Zealand; a positive or negative rating action would stem from a similar move on the sovereign. We would likely take negative rating action in the unlikely scenario that the Public Trust is no longer required to provide non-commercial services to the New Zealand government or if the government were to privatise the business. Contact: Primary Analyst John Birch Director +62 2 8256 0345 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8407 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 PUBLIC 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes 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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