Moody’s assesses N.Z. economic performance

Press, 11 January 1986, Page 19

Moody’s assesses N.Z. economic performance

By Tom Bridgman, NZPA staff correspondent Washington Moody’s Investment Service in New York has confirmed an AA rating on a SUSISO million (SNZ3OOM) Yankee bond issue which New Zealand placed in what is regarded as an “extremely successful” issue that achieved a lower interest rate. In a statement accompanying the rating, Moody’s gave a mixed report on the New Zealand economy, noting “positive” economic measures, but also the continuing high inflation and unfavourable terms of trade.

Moody’s, which rates all Government and corporate bond issues, said the SNZ3OOM in notes placed on Wednesday were drawn from New Zealand’s ?NZ2 billion shelf registration. In the United States prospective borrowers have to file applications with the Securities and Exchange

Commission. Officials said that had been a cumbersome process, but in the past two or three years it had been possible to seek a blanket approval: covering a set amount. New Zealand had sought' Eermission to borrow SNZ2 illion on the United States market as part of its debt management programme — ’ basically paying off higher interest loans with lower interest rate borrowing. Last November it borrowed INZ4OOM in fixed rate dollars over 20 years at 10% per cent with another SNZ3OOM on Wednesday at a fixed interest rate of 9% per cent for 25 years. Another SNZIOOOM is expected to be raised on the Euromarket in the near future.

Moody’s, in its report on the issue, said the New' Zealand Government “continues to implement positive measures to lower its Budget deficit, reduce borrowing and financing costs,

diversify export industries, control inflation, and adopt market-based economic policies. The Government Budget deficit as a percentage of gross domestic product has declined from 9 per cent to 3.5 per cent under the Prime Minister, Mr David Lange, and the Finance Minister, Mr Roger Douglas,” it said. However, New Zealand terms of trade (a measure of relative prices of export and imports) remain unfavourable, inflation is persistently double digit, high external debt-servicing costs keep the current-account balance in the red and the rigid labour market remains the one area untouched by the current economic liberalisation policies,” it said.

The bond issue was filled very rapidly and was extremely successful, said Mr Walker Wainwright, a vicepresident at the financiers, Kidder Peabody and Com-

pany, which was responsible for New Zealand’s borrowing.

Kidder Peabody was the lead manager for the loan. Mr Wainwright said it was the first time since 1979 that a country long-term bond issue had achieved an interest rate of less than 10 per cent. “The timing was right in terms of the placing,” he said. If the issue had been placed later in the day it would have cost the Government JNZI3M more over the life of the loan or twice that if they had waited until Thursday.

The New Zealand Government had indicated it wanted to do some restructuring of loans in the New Year with one objective being to get a rate below 10 per cent, he said. The speed with which the bond issue was taken up indicated New Zealand had a good name.

“It is very well perceived, mainly in Japan, where a lot of this paper went, but also among major institutional investors in the United States.”

The success for a 25-year issue "indicates a positive perception of New Zealand,” he said.