NZX debt market value jumps 41% after LGFA lists all its local government bonds

Monday 16th November 2015

The value of debt securities traded on the NZX debt market has jumped by 41 percent after the Local Government Funding Agency listed all of its $5.56 billion of bonds.

The listing of the bonds, which range in maturity from 2017 to 2027, swells the market capitalisation of the NZDX market to about $19.1 billion from $13.5 billion. The LGFA bonds are currently held by domestic and international institutional investors, banks and some retail investors.

“Listing on the NZDX will further extend our retail investor base, provide greater price transparency to all investors and achieve best practice from a governance perspective," said Mark Butcher, LGFA chief executive. "Listing should also help increase secondary market liquidity in LGFA bonds and assist retail investors with greater access to a highly rated and liquid fixed income investment.”

LGFA was set up in December 2011 following recommendations from the 2009 Jobs Summit and Capital Markets Development Task Force as a way to reduce borrowing costs across New Zealand's local government sector. It is 20 percent owned by the government, with the remaining 80 percent held by 30 councils.

Last week, the agency's AA+/A1+ credit ratings affirmed by Standard & Poor's, which cited the likelihood of central government support, strong market position and "exceptional credit quality". The outlook is stable.

Its scale and the strength of its owners mean it has the second-lowest borrowing costs in New Zealand after the central government.

The agency said offshore institutional investors have doubled their holdings of LGFA bonds to $1.5 billion from $700 million to $1.5 billion in the past year and now hold about 28 percent of the debt on issue.

Credit ratings for the local government sector rank alongside those of the state of South Australia, the provinces of Ontario and Manitoba, most US states and large global cities such as Vancouver, Toronto, New York, Tokyo, Geneva and Prague.

BusinessDesk.co.nz

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