NZ Post, Kiwibank credit ratings cut by S&P

Tuesday 30th October 2012

State-owned New Zealand Post and its subsidiary Kiwibank had their credit ratings cut one notch by Standard & Poor's on the group's growing reliance on its banking operations and expectations of dwindling postal revenues.

The credit ratings were cut to A+ from AA-, with a stable outlook, as Kiwibank faces tough competition in the banking sector, and as NZ Post's traditional postal services shrinks and forces the state-owned enterprise to seek revenue elsewhere.

"The downgrade reflects our view of the group's significant contingent exposure to its large and growing banking operations, Kiwibank, as well as our expectation that NZ Post's revenue and earnings will increasingly be focused on the group's more competitive businesses such as parcels, express courier and financial service," S&P credit analyst Adrian Chow said.

"The stable outlook reflects our expectation that NZ Post will continue to reduce costs and improve the efficiency of its mail delivery network to offset the ongoing decline from standard-letter volumes," he said.

S&P put the group's ratings on a negative outlook in February, and in June Fitch Ratings said the pace of Kiwibank's growth plans was a risk to its AA credit rating.

NZ Post chief executive Brian Roche said the rating downgrade reflected the need for fundamental change in the mail business, which the SOE is "well-advanced" in laying out strategies to deal with those issues.

"New Zealand Post has developed and is evolving the plans to achieve a sustainable physical network as well as continuing with the strategies of growing the bank and creating a digital future," Roche said.

Earlier this month, NZ Post hired Grant Samuel to advise on finding an investment partner to help with growing its Localist deals and events website.

The rating on Kiwibank subsidiary Kiwi Capital Securities, the vehicle for its listed preference shares, was cut to BB+ from BBB-. Earlier this month that rating was upgraded to BBB- after S&P changed the application of its bank hybrid criteria.

The Kiwibank preference shares, which pay a coupon of 8.15 percent, fell 0.8 percent to $106 per $100 face value.

New Zealand Post's bonds listed on the NZX's debt market traded at a yield of 5.4 percent, or $107.479 per $100 face value. The $200 million of debt matures in 2039 and pays annual interest of 7.5 percent.

BusinessDesk.co.nz

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