Foreign-currency options

Only one New Zealand government-sector issuer – Auckland Council – has been active in benchmark foreign-currency markets. A return might be on the cards in 2021, though the likelihood of any of its peers following suit remains low.

ZAUNMAYR Auckland Council is the only borrower among the major New Zealand government-sector names with an established foreign-currency borrowing programme. How does this fit into the overall issuance strategy at the moment?

JOHN Our primary funding sources are New Zealand dollars, in wholesale and retail markets, through the LGFA [New Zealand Local Government Funding Agency] and via offshore debt markets. We currently have 46 per cent of our borrowing in foreign currency and we see opportunities to fund in foreign currencies going forward.

At the end of last year, we undertook offshore investor engagement virtually and the feedback was very positive. We have done three benchmark euro deals, and these investors seem quite bullish on us and are quite interested in when we will come to market again. They have also shown interest is us issuing in green format since we completed our recent 30-year green bond.

We have also tapped the Swiss market, and Australian dollar and Asian markets have also looked positive.

Currently, the basis swap makes offshore funding look attractive to us. This is a factor we will consider as we progress through our 2021 funding decisions.

At the end of last year, we undertook offshore investor engagement virtually and the feedback was very positive. We have done three benchmark euro deals, and these investors seem quite bullish on us and are quite interested in when we will come to market again.

ANDREW JOHN AUCKLAND COUNCIL

DIREEN We are still very much focused on developing liquidity in the New Zealand dollar bond market. It is a big focus for us to build out outstanding volume in our home market.

The question of capacity is, I think, a fascinating one. Early on when we came to market, we often heard we might struggle to issue more than NZ$1 billion (US$719.8 million) domestically, but then as we grew the number seemed to be around NZ$2 billion.

I think there is no hard limit, but the higher we go the more impact we have on the market and other issuers in our sector. We are very conscious of this, even if we do not have a lot of say in the end result.

Having flexibility in the financing tools available is something I think all treasurers value. But as mentioned the focus for us right now is New Zealand dollars.

ZAUNMAYR The LGFA has had an Australian dollar programme for some time but has not used it. It has always been something of a last resort in the past, but what is the outlook?

BUTCHER We have an Australian notes programme that allows us to issue in any currency. We have had it for six years but have still not used it. We continue to get updates on where pricing would land, but at the end of the day our benchmark is our domestic funding programme levels and the offshore issuance swap back into New Zealand dollars still does not offer attractive pricing.

We keep saying there is a home advantage of being in New Zealand, where we have market liquidity and a benchmark curve. Our view has not changed on this at all.

If we ever find that the New Zealand market is no longer open, issuing in foreign currencies will be an option. But we have seen that even through some dark times last year the domestic market was able to fund, albeit in a limited manner.