08 December 2014
The Invercargill City Council has been assigned a credit rating of AA by a leading global company in credit ratings and research, Fitch Ratings.
In a joint statement from Invercargill Mayor Tim Shadbolt and Chairman of Finance Cr Neil Boniface, the Council has welcomed the AA credit rating and Fitch’s assessment of the outlook for Invercargill as “Stable”.
Mayor Tim Shadbolt said the credit rating would give the Council international credibility in its financial dealings and reflected Invercargill City’s conservative management approach and solid financial performance. He was delighted that Fitch described Invercargill as having debt ratios that compare “very favourably against AA peers”.
“It is confirmation from an independent source, with an international reputation, that Invercargill has been consistently well managed over the years,” he said.
Cr Boniface said the Invercargill City Council had obtained a credit rating to enable it to access a greater range of funding sources for the city at more favourable terms. A solid credit rating would allow Council to access lower interest rates and to secure funding for longer terms. “It is another way of Council looking at the most efficient way to operate and save ratepayers’ money,” he said.
In releasing the assigned rating, Fitch Ratings said:
KEY RATING DRIVERS
The ratings reflect the support gained from a robust institutional framework for local and regional councils in New Zealand, a sound socio-economic profile, Invercargill’s conservative management approach and historically solid fiscal performances, and strong debt metric’s relative to other highly rated peers.
New Zealand’s strong institutional framework is an important positive rating factor. It includes transparent reporting and financial disclosure, strong controls and supervision, a high level of own-source revenues (rates), and limited responsibilities, mainly water and road infrastructure.
Invercargill’s fiscal performance has been consistently solid. Fitch calculated a (cash-flow) operating margin of 27.2% in the financial year ending June 2014 (FYE14), up from 26.5% in FY13 and well above similarly rated international peers. Moreover, over the five years to FYE14 the operating margin has averaged 28.7%. This performance lends support to the council achieving the forecasts in its 10 year long-term plan, and forecast operating margin projected to average 29.1% over the three years to FYE17.
Invercargill has traditionally maintained conservative debt metrics, and following a reduction in direct debt of 26% to NZD29.7m at FYE14, debt ratios compare very favourably against ‘AA’ peers. Invercargill’s payback (debt/current balance) ratio improved from 2.2 years at FYE13 to 1.5 years at FYE14 and is projected to fall to 1.4 years by FYE17. Direct debt as a percentage of current revenue declined from 53.2% at FYE13 to 36.6% at FYE14 and is projected to fall to 34.9% by FYE17.
Invercargill’s management and governance are supported by clear policy guidelines and a rigorous planning process that includes 10 year long-term plans (LTP) updated every three years. The mayor, chief executive and chairman of finance have served since 1998, 1986 and 1974, respectively and this has helped ensure consistency in policy and strategic direction.
Invercargill is a small and diversified manufacturing (35.6% of GDP in 2012) led economy. Total population of around 53,700 increased by 1% in FY14, and the city’s GDP of around NZD1.7bn in 2012 equates to 0.6% of the national GDP. The city is a key hub for a large agricultural region that includes dairying, forestry and fishing, and through an attractive zero fee rate policy at the Southern Institute of Technology, has developed a large student population.
Invercargill’s ratings could come under pressure, if unexpectedly its operating performance deteriorated significantly, with operating margins dropping towards 15% and its direct debt to current balance increasing above 3 years for a prolonged period. A significant increase in the debt of any non-self-supporting public sector entities could also pressure the ratings.
Positive rating action would require greater diversification in the economy and expansion of the tax base.
Enquiries, please phone:
Mayor Tim Shadbolt, (03) 2111-777
Cr Neil Boniface, (027) 220 4220
Mr Dean Johnston, (027) 248 1182