The Commonwealth of Australia was formed in 1901

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1 ISSUER PROFILES COMMONWEALTH OF AUSTRALIA CREDIT RATINGS (LONG-TERM AUD) RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) 28/9 29/1 RBNZ REPO SOVEREIGN /AAA (STABLE) (JULY TO JUNE) A$34BN A$57BN The Australian government currently issues debt securities denominated only in Australian dollars. They are issued as Treasury Bonds, Treasury Indexed Bonds and Treasury Notes. Treasury Bonds are medium- to long-term debt securities that carry an annual rate of interest fixed over the life of the security, payable semi-annually. About Commonwealth of Australia The Commonwealth of Australia was formed in 191 as a federation of six states New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania. It now also includes 1 territories including the Australian Capital Territory, which contains the national capital (Canberra). The federal government of the Commonwealth of Australia is generally known as the Australian government. Australia is a stable, culturally diverse and democratic society with a skilled workforce and a vigorous, competitive economy. Between 199/91 and 28/9 Australia s real economy grew by an average of around 3.4% a year. Australia s GDP in 28/9 was just over A$1.2 trillion. The International Monetary Fund estimates that in 28 Australia was the world s 18th-largest economy by GDP (in purchasing-power-parity terms). Australia s real per capita GDP (in purchasing-powerparity terms) ranked 12th among OECD nations in 27. Fiscal position The Australian government had an underlying cash deficit of A$27.1 billion (2.3% of GDP) in 28/9. Underlying cash deficits of A$57.7 billion (4.7% of GDP) and A$46.6 billion (3.6% of GDP) are forecast for 29/1 and 21/11, respectively. Debt position A sustained period of government budget surpluses in the years prior to 28/9 enabled the Australian government to reduce sovereign debt to very low levels. Net debt was eliminated during the financial year ended June Borrowing was not needed for budget funding purposes during this period, but the government continued to issue bonds to maintain a liquid and efficient bond market. At the end of June 29 the Australian general government sector had negative net debt (that is, financial assets exceeded debt) by A$16.1 billion (1.3% of GDP). Net debt is projected to increase to 9.4% of GDP at the end of June 213. Treasury Indexed Bonds are medium- to long-term securities for which the capital value of the security is adjusted by reference to movements in the Consumer Price Index (CPI). Interest is paid quarterly, at a fixed rate, on the adjusted capital value. At maturity, investors receive the adjusted capital value of the security the value adjusted for movement in the CPI over the life of the bond. Treasury Notes are short-term discount debt securities (generally less than nine months) issued to assist with the government s within-year financing. The Australian Office of Financial Management (AOFM) is the Australian government agency responsible for the issue and management of Australian government debt. Issuance is normally by competitive tender, but a recent issue of Treasury Indexed Bonds was undertaken as a syndicated offering. Tenders are conducted by the AOFM using a tender system accessed via the Yieldbroker DEBTS system. Bids for stock offered for sale via tender may only be submitted by parties that are registered with the AOFM. TREASURY BONDS Treasury Bonds are the Australian government s main funding instrument. At mid-october 29 there were 1 lines of Treasury Bonds on issue with an aggregate face value of A$87.7 billion. Bond issuance (nominal and indexed) in the 29/1 financial year (July 1 29 to June 3 21) is expected to be around A$57 billion. The bulk of issuance will be into existing Treasury Bond lines. This will enhance the liquidity and efficiency of the Treasury Bond market by increasing the size of individual bond lines. It is planned to issue a new Treasury Bond line maturing in 222 in the last quarter of the financial year. TREASURY INDEXED BONDS In September 29 the Australian government resumed issuance of Treasury Indexed Bonds after a period of six years. 2 4 K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

2 VOLUME (A$M) AUSTRALIAN GOVERNMENT TREASURY BONDS OUTSTANDING 14, 12, 1, 8, 6, 4, 2, 7,64 Aug 1 1,499 Jun 11 12,97 11,252 Apr 12 May 13 7,998 Jun 14 8,648 Apr 15 1,747 TREASURY BOND LINE SOURCE: AUSTRALIAN OFFICE OF FINANCIAL MANAGEMENT OCTOBER This involved the syndicated issue of A$4 billion in a new bond line to mature in September 225. The issue was priced at a real yield of 3.4%. The Australian government plans to continue to issue Treasury Indexed Bonds to develop a range of liquid benchmark lines of different maturities. This is expected to assist debt management by widening the range of available Feb 17 8,398 Mar 19 3,149 Apr 2 7,3 May 21 debt instruments, diversifying risk and tapping additional sources of investor demand. TREASURY NOTES Treasury Notes are issued for within-year cash management rather than to contribute to the government s overall funding for the financial year as a whole. The volume of Treasury Notes on issue at the end of June 21 is therefore expected to be similar to that on issue at the end of June 29 (approximately A$17 billion). However, the volume of Treasury Notes on issue will vary over the course of the year, depending on the timing of government receipts and expenditures. It is planned to keep at least A$1 billion of Treasury Notes on issue at all times so as to maintain a liquid market. Ian Clunies-Ross Head of Investor Relations Australian Office of Financial Management ian.clunies-ross@aofm.gov.au NEW ZEALAND DEBT MANAGEMENT OFFICE SOVEREIGN CREDIT RATINGS LONG-TERM DOMESTIC CURRENCY /AAA (STABLE/STABLE/NEG.) LONG-TERM FOREIGN CURRENCY AA+/Aaa/AA+ (STABLE/STABLE/NEG.) RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) (JULY TO JUNE) 28/9 NZ$5.5BN 29/1 NZ$8.5BN RBNZ REPO About New Zealand New Zealand is a parliamentary democracy situated in the South Pacific. It has a population of around 4.3 million in a country similar in land area to Japan and Britain. Its constitutional history dates back to the signing of the Treaty of Waitangi in 184, when the indigenous Maori people ceded sovereignty over New Zealand to the British Crown. The New Zealand Constitution Act 1852 provided for the establishment of a Parliament with an elected House of Representatives. Universal suffrage was introduced in Like Canada and Australia, New Zealand has the British monarch as titular head of state. The Queen is represented in New Zealand by the governor-general, appointed by her on the advice of the New Zealand government. New Zealand has a market economy with sizeable manufacturing and services sectors complementing a highly efficient export-oriented agricultural sector. A high proportion of winter sunshine hours and regular rainfall provide an ideal resource base for pastoral agriculture, forestry, horticulture and hydro-electicity generation. Major merchandise export industries include dairy, meat, forestry, horticulture, mechanical machinery, petroleum products and aluminium. New Zealand is also a popular overseas vistor destination and tourism is an important source of export income. The New Zealand economy had been in recession since early 28, with the downturn initally caused by drought and extended by the flow-on effects of the global financial crisis. Growth returned in the second quarter of 29, although it is expected to remain relatively subdued in the near term. The fiscal position is expected to improve gradually over the medium term as the economy recovers. The government stated in the 2 5

3 ISSUER PROFILES May 29 Budget its intention to limit growth in net debt, which is forecast to peak at around 36% of GDP in 217. Fiscal position The New Zealand government had a residual cash deficit of NZ$8.6 billion (4.8% of GDP) for the 28/9 fiscal year ending June 3. The May 29 budget forecast underlying cash deficits of NZ$11.9 billion (6.8% of GDP) and NZ$12.5 billion (6.9% of GDP) in 29/1 and 21/11, respectively. Debt position Consecutive years of surpluses helped reduce net debt (excluding New Zealand Superannuation Fund assets) to only NZ$1.3 billion (5.7% of GDP) at the end of June 28. The economic recession saw a reduction in tax and increases in benefit and other expenses which have led to operating deficits. The 29 budget forecast four consecutive years of deficits requiring a substantial increase in government debt. The net debt position is forecast to rise to NZ$62.6 billion (3.9% of GDP) by June 213. About NZDMO The New Zealand Debt Management Office (NZDMO) is an operating unit of the New Zealand Treasury responsible for managing the Crown s debt, overall cash flows and interestbearing deposits. It was established in 1988 as part of the reform of the government s financial management to improve the management of the risks associated with the government s debt portfolio. The NZDMO is responsible for the efficient management of the government s debt and associated assets within an appropriate risk management framework. The agency s strategic objective is to maximise the long-term economic return on the Crown s financial assets and debt in the context of the government s fiscal strategy, particularly its aversion to risk. The NZDMO s major responsibilities involve: Financing the Crown s gross borrowing requirement, managing foreign currency assets required to meet net foreign currency interest and principal requirements and settling and accounting for all related debt transactions; Maintaining and developing an appropriate framework for efficiently managing the portfolio and the risks associated with it; Disbursing cash to departments and facilitating departmental cash management; Advancing funds to government entities in accordance with government policy; Providing capital markets services and derivative transactions for departments and government entities; Providing reporting for fiscal forecasting and financial statements; and Maintaining a diversified funding base and, where appropriate, enhancing relationships with investors who hold, or are potential holders of, NZ government securities and with financial intermediaries and international credit rating agencies. The NZDMO may issue a range of domestic and foreigncurrency debt securities. At present debt issuance is concentrated on domestic currency instruments. Since April 7 28 the NZDMO has assumed responsibility for the tendering of New Zealand government bonds (NZGBs) and Treasury Bills from the Reserve Bank of New Zealand. Issuance of NZD debt is by competitive tender. Tenders are held weekly for bills and bonds, with the option of holding unscheduled tap tenders. The Austraclear tender system is used by counterparties to place bids on government securities and to settle successful security allocations. Institutions must first register as a counterparty with the NZDMO before they are eligible to participate in tenders. The current domestic currency securities offered by the NZDMO include: GOVERNMENT BONDS New Zealand government bonds are wholesale fixed-term debt securities the Crown issues to and repurchases from registered tender counterparties in periodic government bond tenders. Government bonds have an initial maturity of one year or more. The NZDMO intends to issue up to NZ$8.5 billion of government bonds in 29/1. To meet this funding requirement, the NZDMO expects to offer around NZ$15-2 million of bonds per week through a combination of regular weekly tenders and occasional tap tenders. The budget forecasts include bond programmes of NZ$11.5 billion in 21/11 and NZ$15 billion in the 211/12 and 212/13 fiscal years. TREASURY BILLS Treasury Bills are wholesale fixed-term debt securities issued by the Crown to registered tender counterparties in weekly Treasury Bill tenders. Treasury bills have an original maturity of one year or less. Since late December 28 Treasury Bill issuance has increased from around NZ$2 million to NZ$5 million per week in three- and six-month maturities. The one-year Treasury Bill may also be reintroduced if there is market demand and if it is cost-effective to do so. Given current demand, the NZDMO expects to continue issuing a combination of maturities totalling around NZ$5 million of Treasury Bills per week. INFRASTRUCTURE BONDS In 26 the then government decided to designate a portion of its borrowing programme specifically for infrastructure purposes as opposed to general purposes and to refer to these bonds as Infrastructure Bonds in its financial reporting. There were no practical changes to government bond tender and issuance procedures as a result of this decision. Infrastructure Bonds were issued on the same terms and conditions as other NZGBs and are fully fungible with existing government bonds of the same maturity dates. Infrastructure Bonds have not been issued since August K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

4 INFLATION-INDEXED BONDS Inflation-Indexed Bonds are a wholesale debt instrument with an inflation-indexed component and were introduced in Issuance was suspended in KIWI BONDS New Zealand Government Kiwi Bonds (Kiwi Bonds) are retail stock offered directly to the public. They are available only to New Zealand residents. Kiwi Bonds are denominated in New Zealand dollars with a fixed interest rate paid quarterly in arrears. The bonds are redeemable on maturity or at the option of the bondholder. Kiwi Bonds are issued in six-month, and one- and two-year maturities. The minimum amount that can be invested is NZ$1, with a maximum of NZ$5, in any one issue. Interest rates are set periodically by the NZDMO from the moving averages of domestic wholesale rates. NEW ZEALAND GOVERNMENT BONDS OUSTANDING VOLUME (NZ$M) 7, 6, 5, 4, 3, 2, 1, Maximum tranche size 15 Nov Apr Apr Feb 16* 15 Dec May 21 *Inflation indexed MATURITY SOURCE: NEW ZEALAND DEBT MANAGEMENT OFFICE OCTOBER Val Jeal Investor Relations Manager val.jeal@treasury.govt.nz NEW SOUTH WALES TREASURY CORPORATION CREDIT RATINGS LONG-TERM AUD LONG-TERM FOREIGN CURRENCY APRA RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) 28/9 29/1 RBNZ REPO AGENCY (STABLE) (STABLE) (JULY TO JUNE) A$5.3BN A$1.4BN subject to application on issue About TCorp New South Wales Treasury Corporation (TCorp) is the central borrowing authority for entities in the New South Wales (NSW) public sector. In addition to the role as the central financing authority for the state, TCorp is also a manager of liability portfolios on behalf of clients and provides financial risk management and asset management services to the NSW government and its constituent businesses. Ownership TCorp was established in 1983 under the Treasury Corporation Act 1983 (NSW) and its principal objective is to provide financial services for, or for the benefit of, the government, public authorities and other public bodies. TCorp is therefore 1 per cent owned by the government of NSW. TCorp has the same legal capacity, powers and authorities as a company under the Corporations Act 21. Examples of activities TCorp engages in are: provision of finance for NSW public authorities; advice on and management of government and public authority assets and liabilities; acceptance of funds for investment from the government and public authorities; investment of funds; and management of TCorp s own assets and liabilities. Guarantee structure STATE GOVERNMENT GUARANTEE All TCorp s borrowings are fully guaranteed by the NSW government and enjoy the highest credit rating available to any Australian issuer ( for both AUD and foreign currency issues). COMMONWEALTH GUARANTEE On March the Commonwealth government announced that it would provide a time-limited, voluntary guarantee over Australian state and territory government borrowing. On June The NSW Treasurer, The Hon. Eric Roozendaal, announced the intention for TCorp to access the Commonwealth government s guarantee for maturities 2 7

5 ISSUER PROFILES between three and 15 years. TCorp s intention is to apply the Commonwealth s guarantee for the existing May 213, August 214, March 217, April 219 and May 223 domestic series, and the existing August 214, March 217 and April 219 exchangeable series. Capital quality/support TCorp has an explicit guarantee from the State of NSW (). The semi-government has also taken up the Commonwealth of Australia s () guarantee on existing AUD-denominated benchmark bond lines with maturities from three to 15 years. Governance and risk Notwithstanding that TCorp is owned by the government of NSW, it has a board and governance structure consistent with publicly-listed companies. A majority of the board is independent, with directors drawn from a range of finance, industry and public sector backgrounds. TCorp is not regulated by the Australian Prudential Regulation Authority or the Australian Securities and Investments Commission, but it voluntarily adopts relevant industry practices which impose conventional market constraints. Capital is held against market, credit and operational risks at levels consistent with similar financial institutions. Market risk is managed using a value-at-risk model, while credit exposures are exclusively with investment-grade counterparties. TCorp has as one of its core functions the provision of financing to the NSW government sector and all NSW government agencies. This central financing role underpins a balance sheet for TCorp of around A$5 billion. This balance sheet is funded through the issuance of a range of debt instruments to both domestic and international investors. TCorp finances NSW public authorities and the government s budget within strict limits which are approved by the Treasurer and the Governor of New South Wales under provisions laid down in the Public Authorities (Financial Arrangements) Act, The borrowing requirements for the government budget and public authorities are finalised at budget time for the upcoming financial year. TCorp has established a range of funding programmes designed to achieve a diversified funding base, with a large proportion of funding sourced domestically. Offshore markets are used for diversification purposes and to take advantage of attractive global funding opportunities. In most cases TCorp uses a panel of leading banks and market intermediaries to distribute its bonds to a range of institutional and individual investors. In the global markets TCorp also accesses a number of offshore markets using an euro medium-term note facility. The majority of TCorp s borrowings are accessed through the benchmark bond programme. This programme issues large and liquid bond lines which are added to over time and are actively traded in financial markets. Investors traditionally buy these bonds to gain the liquidity of Commonwealth government bonds but with a yield pick-up. Outstandings comprise 6 to 8 of liabilities, which currently equates to A$35-4 billion across seven bond lines. Global exchangeable bonds were initially issued for offshore investors as withholding tax exempt. On December 9 28 legislative amendments extending eligibility of the s.128f withholding tax (IWT) exemption to TCorp s domestic bonds came into effect. As such, new investment is generally in the domestic programme, but TCorp will continue to maintain the global exchangeable programme. The volume on issue is around A$7 billion. TCorp benchmark bonds are the most liquid and actively traded in the Australian market after Commonwealth government bonds and pricing is readily available from dealer panel members. TCorp actively supports this liquidity through its balance sheet activities. The diagram below shows a mix of TCorp funding as at June 3 29 (all amounts are market values). TCORP S BALANCE SHEET LIABILITIES VOLUME (A$BN) ,558 26,78 28,92 32,362 35,773 27, Domestic Bonds Global Bonds SOURCE: NEW SOUTH WALES TREASURY CORPORATION JUNE 3 29 Michael Allen General Manager, Treasury michael.allen@tcorp.nsw.gov.au 46, ,731 63,431 56,731 1 (F/C) 11 (F/C) EMTN Other Domestic CPI-Linked 12 (F/C) 72, (F/C) 2 8 K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

6 QUEENSLAND TREASURY CORPORATION AGENCY CREDIT RATINGS LONG-TERM AUD AA+/Aa1 (STABLE) LONG-TERM FOREIGN CURRENCY AA+/Aa1 (STABLE) AUSTRALIAN GOVT.-GUARANTEED BONDS APRA RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) (JULY TO JUNE) 28/9 A$17.5BN 29/1 A$22.5BN About QTC ueensland Treasury Corporation (QTC) fulfils a Qunique role in Queensland as the state s corporate treasury services provider. QTC has a dual responsibility for the state s debt funding and financial risk management. In its funding role QTC borrows funds in both domestic and international markets by issuing a variety of debt instruments. The funds raised are on-lent to Queensland s public sector customers. With responsibility for all the state s debt raisings, QTC captures significant economies of scale and scope in the issuance, management and administration of debt. QTC works closely with its public sector customers to assist them to minimise risk in their financial transactions, and achieve the best financial solutions for their organisations and the state. As the state s corporate treasury services provider, QTC does not formulate government policy, but works within the policy frameworks developed by Queensland Treasury and the state government. In this context, QTC s role is to implement the operational functions of a corporate treasury. QTC issues more debt by volume than any other Australian semi-government issuer, in both the domestic and offshore markets, resulting in large liquid lines of benchmark bonds. Ownership Founded in 1988, QTC is a corporation sole, constituted by the Under Treasurer in accordance with the Queensland Treasury Corporation Act Guarantee structure STATE GOVERNMENT GUARANTEE The Treasurer of Queensland, on behalf of the state government, guarantees all QTC s obligations under all debt securities issued by QTC. AUSTRALIAN GOVERNMENT GUARANTEE On March the Australian government announced it would provide a time-limited, voluntary guarantee over Australian state and territory government borrowings over a range of maturities but limited to AUD-denominated bonds. On June the Queensland government announced that it would take up the Australian government s guarantee offer on all existing AUD denominated benchmark bond lines (global and domestic) issued by QTC with a maturity date of between 12 months and 18 months (one to 15 years). It also advised that it will consider selectively taking up the guarantee for new AUD debt which meets the guarantee criteria, but reserves the right to issue non-guaranteed bond lines. Capital quality/support As at September all existing AUD domestic benchmark bonds maturing within 12 and 18 months (one to 15 years) carry the Australian government s () guarantee. QTC s existing AUD global benchmark bonds maturing in the same timeframe will also carry the sovereign guarantee once the necessary legal and regulatory requirements have been met by both the Australian government and QTC, and once amendments to QTC s global bond programme have been finalised. Queensland s fiscal position is supported by 5 of state revenue coming from grants from the Australian government, and 25% from its own taxes and levies. Risk policy QTC s overall financial risk management programme focuses on managing volatility and seeks to minimise potential adverse effects of financial risks on the financial performance of QTC and its customers. All financial risk management activities are conducted within conservative board-approved policies and robust systems are in place for managing and monitoring financial risks. As the state s corporate treasury services provider, QTC borrows in advance of requirements to ensure Queensland public sector entities have ready access to funding when required and also to reduce the risk associated with refinancing maturing loans. QTC uses a value-at-risk framework to manage its exposure to market risk. All foreign currency borrowings are fully hedged. QTC s primary responsibility is to provide long-term access to competitively-priced funds. Its key funding principles 2 9

7 ISSUER PROFILES demonstrate QTC s commitment to investors and partners in financial markets. These are: Conservative: maintaining a balanced debt maturity profile supported by liquid reserves; Prudent: conservative risk management policies; Transparent: comprehensive, regular market updates; and Committed: valued long-term investor and intermediary relationships. QTC has a diverse range of borrowing programmes, including AUD benchmark bonds (5-6 of funding), commercial paper (25-35% of funding), AUD nonbenchmark, as well as euro and US medium-term notes including Uridashi, Samurai, Kauri, Eurobond and private placement programmes (1-2 of funding). QTC s principal source of funding is through its AUD benchmark bond programme both domestic and global tranches, which are exempt from Australian interest withholding tax. The domestic AUD benchmark bonds are issued on a tap, tender, reverse enquiry and syndication basis. The AUDdenominated global benchmark bonds are offered on a reverse enquiry basis and are transferable into the domestic benchmark bonds. The minimum target outstanding for each of QTC s eight benchmark lines is A$2 billion per line, while the average line size is in excess of A$6 billion. VOLUME (A$M) QTC S TOTAL OUTSTANDING DEBT 1, 8, 6, 4, 2, 4 6, May 1 5.5% 1,361 7,91 14 Jun ,62 16 Apr % Domestic A$47,981 bn Global A$4,454 bn Aug ,193 8,32 8,2 14 Oct , Sep ,336 SOURCE: QUEENSLAND TREASURY CORPORATION SEPTEMBER ,37 Richard Jackson General Manager, Financial Markets rjackson@qtc.com.au Jun 14 Jun 2 Aug 14 Mar % % % Australian Government AAA credit rating Total A$52,435 bn SOUTH AUSTRALIA GOVERNMENT FINANCING AUTHORITY AGENCY CREDIT RATINGS LONG-TERM AUD (STABLE) LONG-TERM FOREIGN CURRENCY (STABLE) APRA RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) (JULY TO JUNE) 28/9 A$1.9BN 29/1 A$4.4BN About SAFA South Australia Government Financing Authority (SAFA) is the central financing authority for the State of South Australia. It develops and implements borrowing and investment programmes for the state government and undertakes other financial activities as determined by the Treasurer of South Australia to be in the interests of the state. SAFA provides a range of services to public sector entities across three key areas debt financing of the state and its instrumentalities, asset and liability management services, and financial risk management advisory and reporting services. SAFA s activities form an integral part of the South Australian public sector financial management. SAFA s annual report is tabled in the South Australian parliament around the same time as the annual financial statements are presented by the Treasurer of the State of South Australia to the South Australian parliament. Ownership SAFA was established on January by the Government Financing Authority Act, SA 1982 (the Act) as the central fundraiser for almost all semi-government authorities created by statute in the state of South Australia and for the South Australian government itself. The authority is a body corporate constituted of the Under Treasurer, with liability attaching to the Crown. SAFA is therefore owned by the government of South Australia. SAFA had capital and reserves of A$199 million as at June Under the terms of the Act, moneys provided to SAFA by the Treasurer are to be regarded as provided upon such terms and conditions as the Treasurer may from time to time determine. 3 K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

8 Guarantee structure STATE GOVERNMENT GUARANTEE Liabilities incurred or assumed by SAFA are guaranteed by the Treasurer under Section 15 of the Government Financing Authority Act, SA A liability of the Treasurer under a guarantee will be satisfied out of the general revenue of the state. COMMONWEALTH GUARANTEE On March the Commonwealth government announced that it would provide a time-limited, voluntary guarantee over Australian state and territory government borrowing. The guarantee will be available for both existing and new issuances of securities over a range of maturities, but will not extend to issuances denominated in foreign currencies. On July The South Australian Treasurer, The Hon. Kevin Foley, announced that South Australia would not at this time take up the opportunity to guarantee SAFA s existing Select Lines as is permissible under the Commonwealth guarantee of state and territories borrowings scheme. He said the decision does not preclude South Australia using the guarantee in the future if warranted by market conditions. Capital quality/support SAFA has an explicit guarantee from the State of South Australia (). Governance and risk The Government Financing Authority Act, SA 1982 provides for the SAFA advisory board to consist of five or six members, as the Governor of South Australia determines, including the Under Treasurer of South Australia as the presiding member. The other members are appointed by the governor, upon nomination by the Treasurer. The Act requires that SAFA conduct its affairs in accordance with proper principles of financial management. In the performance of its functions, SAFA is subject to the control and direction of the Treasurer. The Treasurer has approved a policy manual establishing the framework through which SAFA exercises its legislative powers. SAFA must maintain proper accounts of its financial affairs. These accounts must be audited by the auditor-general of South Australia on an annual basis. An annual report, including audited accounts, must be prepared each year for tabling in both houses of parliament. In recent years the state has had a low level of debt outstanding, and small borrowing programme relative to Queensland, New South Wales and Victoria. SAFA has focused is borrowing activities in the domestic market, concentrating its issuance into benchmark, or Select Lines, with typically A$8 million to A$1 billion outstanding in each line. SAFA has also maintained a domestic commercial paper (CP) programme with up to A$1 billion outstanding. These programmes have allowed SAFA to maintain a presence in financial markets, while minimising the cost of debt for short-term and long-term debt. The size of SAFA s borrowing programme from 21 to 28 has not justified maintaining offshore borrowing facilities. SAFA s borrowing programme has increased in the 29/1 financial year, to meet the expanded requirements of the state and its agencies. SAFA s strategy is to continue to focus on domestic Select Lines and CP. The abolition of interest withholding tax on state government domestic bonds has opened the way to increased offshore investor participation in SAFA s Select Lines. The increased size of the borrowing programme will enable SAFA to deepen the size of current and future Select Lines, dovetailing with investor preference that each line has at least A$1 billion on issue. In addition, SAFA will seek to access offshore markets to broaden its investor base, provided funding margins at comparative levels to domestic levels are achieved. SAFA has re-established a euro commercial paper programme and may activate a euro medium-term note programme if required. Currently, SAFA has no intention of issuing inflationlinked bonds in 29/1. SAFA s funding requirement for 29/1 is forecast at A$4.4 billion. This reflects new borrowings of A$2.3 billion from public sector clients, most notably the general government sector and SA Water, and a maturing Select Line and P-Notes of A$2.7 billion. SAFA S DEBT COMPOSITION VOLUME (A$BN) Select Lines Domestic Other (est.) SOURCE: SOUTH AUSTRALIA GOVERNMENT FINANCING AUTHORITY JUNE 3 29 Domestic Short-Term Offshore John Powell Director, Financial Markets and Client Services Michael Williams Manager, Financial Markets or

9 ISSUER PROFILES TASMANIAN PUBLIC FINANCE CORPORATION CREDIT RATINGS LONG-TERM AUD LONG-TERM FOREIGN CURRENCY APRA RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) 28/9 29/1 AGENCY AA+/Aaa (STABLE) AA+/Aaa (STABLE) (JULY TO JUNE) A$545M A$78M Risk policy Tascorp operates within a capital limit agreed with the Treasurer of Tasmania from time to time. At the moment the limit is A$27 million. Tascorp allocates capital against credit default risk, market risk and operational risk based on the Basel II and Australian Prudential Regulation Authority guidelines for banks. Broadly speaking, Tascorp s capital base has been allocated 86% to credit default risk, 12% to market risk and 2% to operational risk since 26. About Tascorp The Tasmanian Public Finance Corporation (Tascorp) is the central borrowing authority for the State of Tasmania. Established in 1985, Tascorp is responsible for developing and implementing borrowing and investment programmes for the benefit of Tasmanian state authorities. It has the power to invest and borrow money both inside and outside Australia. Ownership Tascorp is a corporation established under an Act of the Tasmanian parliament. It is owned entirely by the Tasmanian state government, which is represented at shareholder level by the Treasurer of Tasmania. It is governed by a state-appointed board of directors. Guarantee STATE GOVERNMENT GUARANTEE All Tascorp debt is guaranteed by the State of Tasmania. The terms of the guarantee are set out in Section 15 of the Tasmanian Public Finance Corporation Act, which states: Liabilities incurred or assumed by the Corporation in pursuance of this Act are guaranteed by the State, and any liabilities of the Crown arising by virtue of this [guarantee] shall be payable out of the Consolidated Fund without further appropriation COMMONWEALTH GUARANTEE On July 1 29 Tascorp said it plans to issue both Commonwealth-guaranteed and non-guaranteed bonds. Tascorp expects to launch new lines of Commonwealth-guaranteed hot stock and to continue to issue non-guaranteed bonds under its existing lines of hot stock. We do not intend to seek a guarantee for existing hot stock, said Tascorp s chairman, Don Challen. Capital quality/support Tascorp benefits from an explicit guarantee from the State of Tasmania (AA+/Aaa). Tascorp plans to issue bonds in response to investor demand and is committed to diversifying its investor base. From 29 it has also committed to structuring bond issues so they are free of interest withholding tax for foreign investors. The annual funding volume target for 29/1 is A$78 million, with A$6 million planned for the following year and A$679 million in 211/12. So far this year Tascorp has issued A$1 million in a new 22 maturity and topped up its 215s by A$5 million as well as increased its 211s by A$3 million. Tascorp operates three debt programmes a domestic bond programme, a domestic commercial paper programme and a Euro commercial paper programme. TASCORP S BORROWING PROGRAMMES VOLUME (A$M) 3, 2,5 2, 1,5 1, 5 Hot Stock 11 Hot Stock 13 Facility Limit AUD Hot Stock 15 Hot Stock 2 Facility Used A$2,5M Domestic CP facility SOURCE: TASMANIAN PUBLIC FINANCE CORPORATION SEPTEMBER 3 29 Raewyn Tietjens Senior Manager, Financial Markets rtietjens@tascorp.com.au US$2,5M ECP facility 3 2 K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

10 TREASURY CORPORATION OF VICTORIA CREDIT RATINGS LONG-TERM AUD LONG-TERM FOREIGN CURRENCY APRA RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) 28/9 29/1 AGENCY (STABLE) (STABLE) (JULY TO JUNE) A$4.36BN A$5.63BN About TCV Treasury Corporation of Victoria (TCV) is the State of Victoria s central funding authority and financing adviser. Its overarching focus is the delivery of financing outcomes that are beneficial to, and protective of, the interests of the state. TCV achieves this by delivering three core competencies to the state and state-related entities. These are loans and financing services, advisory services, and investment services. These services are tailored to suit the specific needs of clients. TCV issues Victorian government-guaranteed debt to fund its provision of loans to the state and participating authorities. Ownership TCV was established by the Treasury Corporation of Victoria Act 1992 and commenced operations on January TCV the successor in law to the Victorian Public Authorities Finance Agency (VicFin) is the state s central financing authority and is 1 per cent owned by the government of Victoria (). Guarantee structure STATE GOVERNMENT GUARANTEE TCV s payment obligations in relation to its borrowings and derivative transactions are guaranteed by the government of Victoria as detailed in the Treasury Corporation of Victoria Act TCV s loans to its participating authorities are themselves guaranteed by the government of Victoria. COMMONWEALTH GUARANTEE On June the Treasurer of Victoria and TCV announced that the state would not be using the Commonwealth guarantee scheme at that time, although the state has reserved the right to use the scheme should market conditions deteriorate and the use of the Commonwealth guarantee becomes in Victoria s commercial interest. The decision not to use the guarantee was based on the strength of Victoria s budget, the state s rating, and the moderate financing requirement for the 29/1 financial year. Interest withholding tax Interest paid by TCV on bonds issued under the domestic Inscribed Stock programme can now be free of interest withholding tax (IWT) for international investors. Exemption from IWT only arises where these bonds would have satisfied a public offer test when they were issued. TCV s principal lines of domestic Inscribed Stock satisfy this criterion. Specific information on exempt lines can be obtained from TCV s website, or by contacting the dealing team directly. Capital quality/support TCV commenced its operations with capital of A$3 million. At June 3 29 retained capital and earnings totalled A$173 million. TCV has paid dividends to the state in excess of A$25 million since TCV has an explicit guarantee from the State of Victoria (). Risk policy TCV s operations expose the treasury corporation to financial and operational risks. Management of these risks is therefore a core element of organisational objectives. In this respect, TCV s principal objective is to provide a robust and consistent risk management, performance measurement and capital management framework which is commensurate with TCV s business mandate, corporate objectives, business plan and risk appetite. This risk management framework has been developed consistent with the prudential policy requirements established by the Treasurer and is monitored by the board and TCV s prudential supervisor, who is appointed by the Treasurer. The risk management framework of TCV includes a dedicated and independent risk and performance measurement business unit and established internal risk management policies and controls set by the board of directors and senior management. To service the financial requirements of Victoria, TCV maintains four key funding programmes. The domestic Inscribed Stock programme is the cornerstone of the corporation s funding strategy. TCV seeks to maintain at least five lines of stock with a minimum of A$ billion per issue. TCV supplements its domestic Inscribed Stock with three other programmes: a US$3 billion euro medium-term note programme, a A$5 billion euro 3 3

11 ISSUER PROFILES TCV S TOTAL OUTSTANDING DEBT VOLUME (A$BN) Sep 29 commercial paper programme and a A$5 billion domestic promissory note programme. Activity in each programme is predominantly facilitated by a dealer panel. TCV has a funding requirement of A$5.635 billion for the financial year ending June It is expected that the majority of debt raisings will be centralised within the domestic Inscribed Stock programme, although TCV will consider opportunities to issue into offshore markets as they arise. At September 3 29 more than half of this expected debt raising had been completed, supported by the issue of a new benchmark line of domestic Inscribed Stock (6% June 15 22) in September 29. Domestic Inscribed Stock Other Domestic Offshore Indexed SOURCE: TREASURY CORPORATION OF VICTORIA SEPTEMBER 3 29 Justin Lofting General Manager, Treasury j.lofting@tcv.vic.gov.au WESTERN AUSTRALIAN TREASURY CORPORATION CREDIT RATINGS LONG-TERM AUD LONG-TERM FOREIGN CURRENCY APRA RISK WEIGHTING FUNDING VOLUME (FINANCIAL YEAR) 28/9 29/1 AGENCY (STABLE) (STABLE) (JULY TO JUNE) A$5.83BN A$7.87BN About WATC Western Australian Treasury Corporation (WATC) is the central borrowing authority for the State of Western Australia. In this role, WATC borrows funds in domestic and overseas markets for lending to 166 semi-government and local authorities in Western Australia, including the state government. As at September 3 29 the total debt of WATC amounted to A$18.5 billion. Ownership WATC was established on July under the Western Australian Treasury Corporation Act 1986 (the Act) as the state s central borrowing authority. Amendments to the Act during 1998 expanded the corporation s role to include the provision of financial management services to the Western Australian public sector. WATC is 1 owned by the State of Western Australia. Guarantee structure STATE GOVERNMENT GUARANTEE Under Section 13(1) of the Western Australian Treasury Corporation Act 1986, the financial liabilities incurred or assumed by the corporation are guaranteed by the Treasurer on behalf of the state. Any financial liability of the Treasurer under the guarantee shall be charged to, and paid out of, the consolidated account of the state which is appropriated to the necessary extent under Section 13 (2) of the Act. COMMONWEALTH GUARANTEE On July 7 29 the Treasurer of Western Australia announced that WATC will not be using the Commonwealth guarantee at this stage. This does not preclude WATC from taking up the guarantee at some time in the future should market conditions warrant it. Capital quality/support Explicit guarantee from the State of Western Australia (). 3 4 K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

12 Interest withholding tax Interest paid by WATC on bonds issued under the domestic Inscribed Stock programme can now be free of interest withholding tax (IWT) for international investors. Exemption from IWT only arises where these bonds would have satisfied a public offer test when they were issued. WATC s principal lines of domestic Inscribed Stock satisfy this criterion. Specific information on exempt lines can be obtained from WATC s website, or by contacting the dealing team directly. Risk policy WATC has a comprehensive risk management policy which governs the management of its market, credit, liquidity, foreign exchange, operational and reputational risks. In the Australian domestic market WATC issues fixed income Inscribed Stock in a manner which produces cost savings for the state. This is accomplished by selling lines of benchmark bonds which involves the sale, progressive issuance into, and maintenance of, large volumes of Inscribed Stock in a select number of maturities. Investor requirements for the liquidity of benchmark bonds require that each benchmark bonds line has at least A$1 billion on issue. The issuance of highly liquid benchmark bonds maintains the attractive pricing status that Western Australia enjoys in relation to the other state central borrowing authorities and corporate issuers, resulting in the cheapest possible cost for long-term domestic debt. As at September 3 29 WATC had approximately A$1.7 billion of domestic fixed income Inscribed Stock on issue in six lines of benchmark bonds maturing in 29 (A$1.363 billion on October 15 29), 211, 213, 215, 217 and 219. WATC also has other preferred lines in addition to its benchmark bond lines, which may be developed into benchmark bond lines when sufficient volume is on issue. As at September 3 29 there were two such outstanding lines A$132 million maturing in July 221 and A$173 million maturing in October 223. In addition, WATC issues short-term Inscribed Stock in the domestic market. These issues are not restricted to market-makers and are undertaken on a tap basis, primarily with domestic banks. As at September 3 29 there was A$4.9 billion of short-term Inscribed Stock outstanding. WATC s overseas borrowing strategy is aimed at: Borrowing at a lower cost than equivalent domestic rates after hedging any foreign currency exposure; Undertaking issues in a range of currencies and structures to meet any special portfolio or client requirements; and Diversifying its investor base. The corporation s ongoing strategy continues to be to tap overseas markets on an opportunistic basis through bond issues, private loans and its range of continuous note issuance facilities. These facilities include a US$2 billion euro medium-term note (EMTN) programme and a US$6 billion euro commercial paper programme. As at September 3 29 WATC had the equivalent of A$3.14 billion outstanding under its euro CP programme and A$5 million outstanding in EMTNs. Following is a chart showing the composition of WATC s total debt outstanding as at June WATC S TOTAL DEBT OUTSTANDING VOLUME (A$BN) Offshore ECP Other Bonds Domestic Short-Term Benchmark Bonds SOURCE: WESTERN AUSTRALIA TREASURY CORPORATION JUNE 3 29 Offshore EMTN Wayne Currie / Vince Cinquina / wayne.currie@watc.wa.gov.au / vince.cinquina@watc.wa.gov.au 3 5

13 ISSUER PROFILES SUMMARY OF AUSTRALIAN AND NEW ZEALAND SOVEREIGN AND SEMI-GOVERNMENT ISSUERS KEY DATA ISSUER CREDIT RATINGS RISK WEIGHTING FUNDING VOLUME P/A (8/9)/(9/1) PURPOSE & OWNERSHIP GUARANTEE AUSTRALIAN SEMI-GOVERNMENTS (AGENCIES) SOVEREIGNS Commonwealth of Australia (Australian Office of Financial Management) (AOFM) New Zealand (New Zealand Debt Management Office) (NZDMO) New South Wales Treasury Corporation (TCorp) Queensland Treasury Corporation (QTC) South Australia Government Financing Authority (SAFA) Tasmanian Public Finance Corporation (Tascorp) Treasury Corporation of Victoria (TCV) /AAA Long-term NZD: /AAA (stable/stable/neg.) Long-term foreign currency: AA+/Aaa/AA+ (stable/stable/neg.) Long-term AUD: Long-term foreign currency: Long-term AUD: AA+/Aa1 Long-term foreign currency: AA+/Aa1 Long-term AUD: Long-term foreign currency: Long-term AUD: AA+/Aaa Long-term foreign currency: AA+/Aaa Long-term AUD: Long-term foreign currency: (APRA) (APRA) (APRA) (APRA) (APRA) A$34bn/ A$57bn NZ$5.5bn/ NZ$8.5bn A$5.3bn/ A$1.4bn A$17.5bn/ A$22.5bn A$1.9bn/ A$4.4bn A$545m/ A$78m A$4.36bn/ A$5.63bn Sovereign issuer. The AOFM is the Australian government agency responsible for the issue and management of Australian government debt. Sovereign issuer. Is an operating unit of the New Zealand Treasury responsible for managing the Crown s debt, overall cash flows and interest-bearing deposits. It is responsible for the efficient management of the government s debt and associated assets within an appropriate risk management framework. Is 1 owned by the government of the State of New South Wales. Has the same legal capacity, powers and authorities as a company under the Corporations Act 21. Principal objective is to provide financial services for, or for the benefit of, the government, public authorities and other public bodies. Is a corporation sole, constituted by the Under Treasurer in accordance with the QTC Act Is the State of Queensland s corporate treasury services provider. Has a dual responsibility for the state s debt funding and financial risk management. Bonds guaranteed by the Commonwealth of Australia are rated. Is a body corporate constituted of the Under Treasurer, with liability attaching to the Crown. SAFA is therefore owned by the government of South Australia. Is the central financing authority for the South Australian government, for which it develops and implements borrowing and investment programmes. Is a corporation established under an Act of the Tasmanian parliament. Is entirely owned by the Tasmanian state government. Is the central borrowing authority for the State of Tasmania. Is responsible for developing and implementing borrowing and investment programmes for the benefit of Tasmanian state authorities. Is a corporation established under an Act of parliament and is 1 owned by the government of the State of Victoria. Is the State of Victoria s central funding authority and financing adviser. Overarching focus is the delivery of financing outcomes that are beneficial to, and protective of, the interests of the state. Not applicable : is a sovereign issuer. Not applicable : is a sovereign issuer. STATE GOVERNMENT GUARANTEE: All TCorp s borrowings are fully guaranteed by the New South Wales government and enjoy the highest credit rating available to any Australian issuer. COMMONWEALTH GUARANTEE: On June TCorp announced it will access the sovereign guarantee for benchmark bonds of maturities between three and 15 years. STATE GOVERNMENT GUARANTEE: The Treasurer of Queensland, on behalf of the state government, guarantees all of QTC s obligations under all debt securities issued by QTC. COMMONWEALTH GUARANTEE: On June QTC announced it would take up the sovereign guarantee for all existing AUD-denominated benchmark bonds with a maturity date between 12 months and 18 months. STATE GOVERNMENT GUARANTEE: Liabilities incurred or assumed by SAFA are guaranteed by the Treasurer of South Australia. COMMONWEALTH GUARANTEE: On July it was announced that SAFA would not at this time take up the opportunity to guarantee its select lines. But the state is not precluded from using the sovereign guarantee in the future if warranted by market conditions. STATE GOVERNMENT GUARANTEE: All Tascorp debt is guaranteed by the State of Tasmania. COMMONWEALTH GUARANTEE: On July 1 29 Tascorp stated it plans to use both Commonwealth guaranteed and non-guaranteed bonds. It expects to launch new lines of Commonwealth-guaranteed hot stock and continue to issue state-guaranteed bonds under existing lines of hot stock. STATE GOVERNMENT GUARANTEE: TCV s payment obligations in relation to its borrowings and derivative transactions are guaranteed by the government of Victoria. COMMONWEALTH GUARANTEE: On June TCV announced it will not be using the sovereign guarantee, although it has reserved the right to use the Commonwealth guarantee scheme should market conditions deteriorate. Western Australia Treasury Corporation (WATC) Long-term AUD: Long-term foreign currency: (APRA) A$5.83bn/ A$7.87bn Is a corporation established under an Act of parliament and is 1 owned by the State of Western Australia. Is the central borrowing authority for the State of Western Australia. Borrows funds in the domestic and overseas markets for lending to semigovernment and local authorities in the state. STATE GOVERNMENT GUARANTEE: All WATC s financial liabilities are guaranteed by the Treasurer on behalf of the State of Western Australia. COMMONWEALTH GUARANTEE: On July 7 29 WATC announced it will not be using the Commonwealth guarantee at this stage. This does not preclude WATC from taking up the guarantee in the future if warranted by market conditions. 3 6 K A N G A N E W S / C B A S U P P L E M E N T N O V E M B E R 2 9

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