Reuters: US Dollar Report: RPT-Fitch affirms Queensland at 'AA'; outlook stable

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RPT-Fitch affirms Queensland at 'AA'; outlook stable Sep 12th 2013, 09:11 Thu Sep 12, 2013 5:11am EDT (Repeat for additional subscribers) Sept 12 (Reuters) - (The following statement was released by the rating agency) Fitch Ratings has affirmed the Long-Term Foreign and Local Currency Ratings of the State of Queensland (QLD) and Queensland Treasury Corporation (QTC) at 'AA'. At the same time, Fitch has affirmed QTC's Commonwealth of Australia guaranteed outstanding senior unsecured debt rating at 'AAA'. The Outlook is Stable. A full list of ratings can be found at the end of this commentary. KEY RATING DRIVERS The affirmation reflects Fitch's view that QLD has taken strong measures during FY13 to rebuild QLD's financial position. QLD is particularly looking to limit expenditure growth through stringent operating efficiencies, whilst revenue growth is supported by limited taxation measures and increased share of the GST pool from 19.9% to 21.4%, thus enabling a return to surplus and reducing debt from FY16 onwards. The ratings also take into account QLD's considerable contingent liabilities of QTC, whose risk is partly mitigated by its lengthened debt maturity profile and significant liquid assets. The Stable Outlook reflects Fitch's expectations that QLD's growth forecast, announced in its Budget 2013/14, will contribute to a restoration of the state's fiscal position. The Outlook factors in reducing deficits in the next two financial years and the prospect of QLD posting a surplus in FY16. Operating revenue growth remained subdued during FY13, achieving a small 0.7% increase. This slow growth is attributable to the on-going weakness of the national GST pool, and royalty revenue being down as a result of weak coal prices. Operating revenue growth is expected to improve across the forecast averaging growth of 6.6% as a result of increases in the state share of the GST pool and improving state based taxes. Fitch forecasts the strong growth in FY16 & FY17 will likely see QLD's economy outperform the national average. Fitch estimates capital expenditure to continue at relatively high levels compared to domestic peers, averaging AUD8.7bn across the forecast. However, the state has committed to reducing capital expenditure totalling AUD7.2bn in FY17, down from the peak of AUD11.8bn in FY11. In line with these forecasts, Fitch estimates the state's debt will increase to AUD48bn by FY15, before stabilising and beginning to be repaid in the final two years of the forecast as a result of the state achieving surplus. RATING SENSITIVITIES An upgrade is unlikely in the near term, but continued fiscal recovery through strong financial management would be viewed positively. Negative rating action could occur should QLD be unable to restore the operating margin, or should debt grow significantly above the agencies expectations of AUD48bn. QTC's ratings are credit-linked to those of QLD through the state's statutory guarantee and QTC's 100% state ownership. Under Fitch's criteria 'Ratings of Public Sector Entities Outside the United States', QTC has been classified as a dependent public sector entity of the state due to its strategic importance to QLD's local government sector, and its strong control by the state. QTC's ratings will therefore move in line with any rating action on QLD. The affirmation of QTC's guaranteed senior unsecured debt rating reflects the affirmation of the Commonwealth of Australia's Long-Term Issuer Default Rating (IDR) at 'AAA' on 28 March 2013. QTC has four outstanding bond lines benefiting from a guarantee by the Commonwealth of Australia The ratings of the Australia-backed securities are linked to the ratings of the sovereign. A downgrade of the sovereign's IDR would result in a downgrade of QTC's guaranteed senior unsecured debt rating. The rating actions are as follows: State of Queensland (QLD): Long-Term Local-Currency Rating affirmed at 'AA'; Outlook Stable; Short-Term Local-Currency Rating affirmed at 'F1+'; Long-Term Foreign-Currency Rating affirmed at 'AA'; Outlook Stable; and Short-Term Foreign-Currency Rating affirmed at 'F1+'. Queensland Treasury Corporation (QTC): Long-Term Local-Currency Rating affirmed at 'AA'; Outlook Stable; Short-Term Local-Currency Ratings affirmed at 'F1+'; Long-Term Foreign-Currency Rating affirmed at 'AA'; Outlook Stable; Short-Term Foreign-Currency affirmed at 'F1+'; Senior unsecured debt rating guaranteed by QLD affirmed at 'AA'; and Senior unsecured debt rating guaranteed by the Commonwealth of Australia affirmed at 'AAA': 14-Oct-2015 AUD1,989,000,000 6% AU000QT40358 affirmed at 'AAA'; 14-Sep-2017 AUD4,210,000,000 6% AU0000XQLQH7 affirmed at 'AAA;' 14-Jun-2019 AUD4,613,000,000 6.25% AU0000XQLQKI assigned 'AAA'; and 14-Jun-2021 AUD3,234,000,000 6% AU000QT40341 affirmed at 'AAA'. Link this Share this Digg this Email Reprints

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