S&PCORRECT: Ratings On Australian Capital Territory Affirmed At ‘AAA/A-1+’; Outlook Stable

Stocks and Financial Services Press Releases Friday September 28, 2012 15:21
SYDNEY--28 Sep--Standard & Poor's

(Editor's Note: In the third paragraph of this media release it incorrectly stated that the territory is currently phasing out duties over five years; duties and some taxes are being phased out over a period of 5 or 20 years depending on the duty. The media release is being republished to correct the error.)

SYDNEY (Standard & Poor's) Sept. 27, 2012--Standard & Poor's Ratings Services said today that it has affirmed its issuer credit ratings on the Australian Capital Territory (ACT) at 'AAA/A-1+'. The outlook is stable.

The ratings on the ACT reflect the strong institutional framework for state governments in Australia, as well as the ACT's very high GSP per capita income, its strong financial management, and limited contingent liabilities. The ratings are constrained by the ACT's moderate debt burden and its limited budgetary flexibility.

"We consider that the ACT's very strong financial management supports the rating," said credit analyst Claire Curtin. "We also hold the view that strong financial management is, in part, a feature of the Australian system, reflecting a high degree of transparency that includes full consolidation of government businesses in budgeting and accrual accounting. In our view, the ACT's strong financial management is further evidenced by its prudent debt and liquidity management. The territory is currently undertaking tax reform, phasing out some taxes and duties over five years and replacing them with a broad-based land tax, with conveyance duty being phased out over 20 years. We expect this reform to be successfully executed. We do not expect that the outcome of the October 2012 elections will result in a weakening of financial management."

The ACT's moderate debt burden is a ratings weakness, in Standard & Poor's view. Gross debt is expected to peak at just under 60% of consolidated revenues in 2014, and the interest burden remains modest, at about 2.5% of revenues. The ACT's unfunded superannuation position is material, at around 50% of revenues after financial assets held on the ACT's balance sheet are taken into consideration.

"The stable outlook reflects our view that the ACT will retain its commitment to improving its budgetary performance following the election; and our view of the ACT's strong financial management, its low debt burden, and excellent liquidity position," said Ms. Curtin.

"Negative ratings pressures would likely arise from budgetary performance failing to improve materially compared to the anticipated 2012/2013 levels, with a cash operating balance beneath 5% and an average after-capital-expenditure deficit in excess of 10%, or a rise in the debt burden to greater than 60% of revenues. We consider that such pressures could arise from revenues coming in weaker than anticipated or a lack of commitment to fiscal consolidation. "

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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