Minimal debt impact from airline recap

By Phil Boeyen, ShareChat Business News Editor

Friday 5th October 2001

Bailing out the national airline will not significantly increase New Zealand's debt according to Standard & Poor's.

The ratings agency has not changed the country's credit ratings following Thursday's Air New Zealand (NZSE: AIRVA) rescue package, with the local currency rating remaining at AAA/A-1 and foreign currency rating at AA+/A-1. The outlook is stable.

Although the up-front fiscal cost of the recapitalisation could reach $885 million or 0.8% of 2001 GDP, Standard & Poor's says it will not significantly increase the modest net debt burden of the government, which is currently estimated at less than 20% of GDP.

"The government's support measures are being taken under extraordinary circumstances," the agency says.

"Without the required assistance from its shareholders, the operation of New Zealand's national airline could be severely affected, with considerable adverse impact on the domestic tourism sector, the New Zealand economy, and subsequent budgetary cost."

S&P says the Labour-Alliance government is expected to maintain fiscal prudence and manage public enterprises on a commercial basis, limiting future contingent liabilities on the government.

"The fiscal cost could also be mitigated with the eventual re-sale of the national airline."

The ratings agency points out that the country's credit strength continues to be underpinned by a low government net debt position, conservative monetary policies, and a resilient economy.

Comments from our readers

No comments yet