Bangkok--23 Nov--Standard & Poor's
Standard & Poor's Ratings Services said today that it has revised its outlook on the foreign currency sovereign credit ratings on New Zealand to negative from stable. The credit ratings were affirmed at 'AA+/A-1+'. There is no change to the stable outlook on the 'AAA/A-1+' local currency ratings.
"The outlook revision on the foreign currency ratings reflect our recognition of the risks stemming from New Zealand's projected widening external imbalances in the context of the country's weakened fiscal flexibility," said Sovereign Ratings credit analyst Kyran Curry. "New Zealand's vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country's economic recovery and credit quality."
Standard & Poor's stresses, however, that these weaknesses are mitigated by New Zealand's fiscal and monetary policy flexibility, strong institutions, economic resilience, and its actively traded currency.
"The main risk to the ratings would be a significant weakening in the credit quality of New Zealand's banking sector, which is largely owned by the Australian banks, said Mr. Curry. "That said, however, a range of factors ameliorates some of these risks, including a high degree of foreign-currency-debt hedging and an actively traded currency. New Zealand has independent and effective monetary policy settings with a highly traded and free-floating currency that allows external imbalances to adjust. A large portion of the nation's external debt is denominated in New Zealand dollars, while much of the remainder finances companies with revenues in foreign exchange or is hedged. In sum, we view New Zealand's financial and capital markets as supportive of the rating."
The negative outlook on the New Zealand foreign currency ratings reflects the possibility of a ratings downgrade if New Zealand's external position does not improve. Rising public savings will be an important component of such an improvement. The rating could fall, too, if New Zealand's current account weakens because of any higher real cross-border funding costs within its banks.
On the other hand, the ratings could stabilize at the current levels upon a sharper-than-expected improvement in the external accounts, led by stronger export performance and higher public savings.
We have also revised to negative the outlooks on six government-related entities (GREs), given their relationship to the New Zealand government. Those GREs and our rating actions are as follows:
New Plymouth District Council: outlook on the 'AA+/A-1+' foreign and local currency credit ratings revised to negative from stable.
Wellington City Council: outlook on the 'AA+/A-1+'local currency credit rating revised to negative from stable.
Auckland District Health Board: outlook on the 'AA+/A-1+' foreign currency credit ratings revised to negative from stable; no change to the AAA/Stable/A-1+ local currency credit ratings.
Counties Manukau District Health Board: outlook on the 'AA+/A-1+' foreign currency credit ratings revised to negative from stable; no change to the AAA/Stable/A-1+ local currency credit ratings.
Housing New Zealand Corp.: outlook on the 'AA+/A-1+' foreign currency credit ratings revised to negative from stable; no change to the AAA/Stable/A-1+ local currency credit ratings.
Housing New Zealand Ltd.: outlook on the 'AA+/A-1+' foreign currency credit ratings revised to negative from stable; no change to the AAA/Stable/A-1+ local currency credit ratings.
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services licence number 337565 under the Corporations Act 2001. Standard & Poor's credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
Media Contact:
David Wargin, New York (1) 212-438-1579,
[email protected]
Analyst Contacts:
Kyran Curry, Melbourne (61) 3-9631-2082
Brendan Flynn, Melbourne (61) 3-9631-2042