DFC re-rating seen as ‘harsh? move

Press, 21 July 1989, Page 14

DFC re-rating seen as ‘harsh ? move

Moody’s Investors Service downgrading of DFC New Zealand’s short and long-term ratings was “unnecessarily harsh,”- said the DFC’s chairman, Mr John Perham, yesterday. The senior ratings of Eurobonds, fully guaranteed by DFC New Zealand were downgraded by Moody’s from A 3 to Baa2. It also lowered the rating for the commercial paper programme the DFC supports to Prime-3 from Prime-2.

Moody’s said its decision was based on DFC’s "deteriorating asset quality, which resulted from the longer-than-anticipated slowdown in New Zealand’s economy, as well as the company’s reduced importance within New Zealand’s financial system.”

In a statement, Mr Perham said although New Zealand's financial institutions had all been affected by the long slow-down in New Zealand’s economy, as referred to by

Moody’s, the DFC was continuing to take action to minimise the impact on its operations of any deterioration in asset quality. “Particularly surprising was the reference in Moody’s report to DFC’s ‘reduced importance within the New Zealand economy'.” Recognising the economic slow-down in New Zealand, DFC is already implementing a more focused strategy of reducing exposure to New Zealand risks and improving relative capital strengths,” he said.

As a result, DFC was well capitalised and maintained substantial liquidity. It was not presently reliant upon any new external financing.

Both DFC shareholders, the National Provident Fund and Salomon Brothers, remained fully committed to their shareholding in DFC. Moody’s had not appeared to have noticed a number of factors, such as the strength of DFC’s shareholders and the willing-

ness to support DFC. The use of powers relating to > statutory receiverships, under the Corporations (Investigation and Management) Act, was clearly concerning international bankers. Their potential withdrawal of support from New Zealand borrowers would almost certainly have contributed to Moody’s re-rating decision, he said. The DFC had expected the likely re-ratings of New Zealand financial institutions and had maintained higher than normal liquidity because of this. The ratings affected were; • DFC New Zealand Inc. — to Prime-3 from Prime-2 for commercial paper. • DFC Finance Overseas — to Baa2 from A 3 for

Eurobonds ' guaranteed by DFC New Zealand. • DFC Overseas Investment — to Bal from Baal for perpetual floating rate note, fully guaranteed by DFC New Zealand, but at a subordinated level.