Public Trust to lose guarantee

An AA rating for Public Trust smooths the way for Government plans to remove its Crown guarantee.

Friday, June 23rd 2017, 12:00PM

The Government plans to introduce legislation soon that it says will put Public Trust on an equal footing with private sector institutions.

It will remove the Crown guarantee, which Finance Minister Steven Joyce said was in line with policy that Crown-owned commercial businesses should not have a competitive advantage.

"Public Trust recently received an AA credit rating from Fitch," he said. "This rating is a sign of very low credit risk and a high level of ability to meet financial commitments."

Associate Justice Minister Mark Mitchell said the rating gave customers certainty that it was a strong, sustainable business.

"It shows customers that they can have confidence in the organisation and that they will not be disadvantaged by the removal of the guarantee."

He said there was no other business in New Zealand providing the same services as Public Trust with a guarantee. The guarantee will remain in place until the legislation is passed by parliament, probably in the second half of next year.

Fitch Ratings has classified Public Trust as a credit-linked public-sector entity under its Rating of Public-Sector Entities criteria.

This is attributable to Fitch's assessment of the entity's legal status, control and oversight as strong, and its strategic importance and integration as weaker.

As a result, Public Trust is rated one notch below the New Zealand sovereign's Long-Term Local-Currency ID, which is at AA+/Stable.

Fitch believes that support from the New Zealand government would be forthcoming, if needed.

Public Trust is used by ASB, Nikko, Simplicity, Kiwi Wealth, Pathfinder and Mint among other fund managers.

Pathfinder’s John Berry said the rating would give Public Trust a jump on other trustee companies. “Investors understand credit ratings and that double A is strong.”

He said it was unlikely that fund managers would change trustee company because of the rating. “Trustees are supervised by the FMA so we regard them all as robust.”

But he said it would help from an investor confidence perspective.

“It’s a good look for the supervisor to be highly rated, particularly when they are holding client assets.”

Fitch noted that the government must meet any deficiency in Public Trust's common fund. It said there was precedent of the Crown providing support when needed to Public Trust and other statutory entities when needed to reduce the cost to taxpayers and minimise economic disruption.

"We would likely take negative rating action in the unlikely scenario that the Public Trust is no longer required to provide non-commercial services to the New Zealand government or if the government were to privatise the business," it said.

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