LGFA extends bond terms as councils shift to 30-year plans

The Local Government Funding Agency, New Zealand councils' lender, now boasts the country's second longest bond term, as the sector moves to a 30-year infrastructure planning regime.

LGFA now offers a 12-year bond due in 2027 to its member council, which is second only to a Transpower bond due in 2028, LGFA chief executive Mark Butcher told media at the Local Government NZ's quarterly briefing. Councils are now extending the term of their debt to seven or eight years, compared to around five years in 2011.

Councils have shifted to 30-year infrastructure strategies, required under amendments to the Local Government Act, to better understand how infrastructure will be renewed and get a clear outlook on funding for the renewal. The country's councils have $120 billion in assets, some of which are coming to the end of their lifetime and are due for either renewal or replacement.

Last year, LGNZ's '3 Waters' project, the first national picture ever published of New Zealand's water assets, found a quarter of the $35.7 billion of water, wastewater and storm water infrastructure is more than 50 years old and up to 20% needs renewal or is unserviceable. Local authorities own and are responsible for the water infrastructure and will foot the bill for upgrades to the assets. LGNZ expects to make recommendations on the next step, including on expected costs and how to finance upgrades, in the middle of the year.

In February 2012, local authorities established the Local Government Funding Agency, creating a borrowing entity with sufficient size to bring down the credit costs of individual councils. LGFA issued $280 million in the March quarter, below its average quarterly issuance of $379 million, and now has $4.83 billion of debt issued.

Mr Butcher said the drop in first quarter borrowing was probably seasonal, with most councils working on infrastructure over the summer and then borrowing in the June and September quarter to pay for work. He said LGFA was seeing borrowing to refinance existing debt.

The lender was also seeing interest from overseas investors attracted to the relatively high yields and safe haven assets of New Zealand in a globally low interest rate environment, and also more investment from KiwiSaver funds.

In the quarter LGFA issued $10 million in bonds due in 2017, $10 million due in 2019, $40 million due in 2020, $30 million due in 2021, $90 million due in 2023 and $100 million due in 2027.

(BusinessDesk)