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NZ sovereign rating not immediately affacted by quake - S&P

Friday 25th February 2011

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Standard & Poor's Ratings Services say its New Zealand sovereign ratings were not immediately affected by the Christchurch earthquake.

Ratings on Christchurch City Council, Christchurch City Holdings, and Christchurch International Airport were also unchanged.

"In our view, it is still too early to assess the overall implications of the considerable disruption to the Canterbury region and the broader New Zealand economy," S&P said today.

"We note that New Zealand's financial system remains operational and will support an inevitable period of increased activity associated with the extensive reconstruction and repair work. Nevertheless, as the situation in New Zealand is rapidly evolving, we will continue to monitor developments."

Lower revenue and the recovery costs were expected to weaken the general government's finances, with the extent of fiscal deterioration to only become clear once a more detailed assessment of the damages of the Christchurch earthquake was available, S&P said.

"In our view, the Government has sufficient flexibility to absorb additional fiscal costs without a negative impact on its creditworthiness. New Zealand's government finances are currently a credit strength."

General government debt burden, net of liquid assets, was currently estimated to peak around 34% of GDP in 2015, which was still well below 69% - the peak in the median level for AA rated sovereigns in 2011 estimates.

There was also considerable scope for the Reserve Bank to provide stimulus, if needed.

New Zealand's rating was now on negative outlook, with its key weaknesses in its external position.

The rating could be lowered if New Zealand's external position deteriorates further, particularly due to rising cross-border funding costs of its banks, S&P said.

Regarding Christchurch City Council, S&P believed the council had some flexibility to take on additional debt. Pressure on the council rating was likely to come from either a significant deterioration in the revenue of both the council and its subsidiaries or a deteriorating local economy.

Christchurch airport's operations were largely unaffected by the earthquake, with the airport expected to seek reimbursement through insurance to complete any repair work identified to date.

"In our view, the airport's liquidity is adequate. However, downward rating pressure may emerge if: there were a substantial and prolonged negative impact on passenger traffic from any negative sentiment around tourism or travel to the region; future cash flow were materially affected by repair works; or the airport's operations were negatively affected."

On Wednesday Moody's Investors Service said it currently saw no reason to change this country's rating, although it was monitoring the impact of the earthquake on the Government's finances.



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