SAFA announces 2013/14 funding requirement

Thursday, 06 June 2013

Updated

Following the budget announcement of the state of South Australia on June 6, the South Australian Government Financing Authority (SAFA) released an indicative funding requirement for 2013/14 of A$6.1 billion (US$5.8 billion).

The state borrowing authority's funding strategy will continue to focus on fixed- and floating-rate select lines, promissory notes and ECP. There are no plans to issue inflation-linked bonds in 2013/14 or to access offshore term funding via an EMTN programme.

SAFA's indicative funding programme 2013/14 (A$bn)

Source: South Australia Government Financing Authority June 6 2013

State budget

The budget announced by South Australia on June 6 shows a deterioration in expected financial performance for 2013/14, followed by an anticipated improvement the following year, a temporary widening of the deficit in 2015/16 as the Royal Adelaide Hospital project is completed, and an anticipation of moving into a surplus position by 2016/17.

The state forecasts a deficit of A$1.5 billion, or 9.5 per cent of revenues, for 2013/14 - which as Moody's Investors Service (Moody's) points out is more than the A$1 billion projected for this financial year in last year's budget. The rating agency says: "The projected deterioration reflects slower growing GST-backed Commonwealth grants, and weaker growth in some of the state's own revenue sources, including payroll and gambling taxes."

Moody's adds that over the medium term the state's deficits are projected to average 4.9 per cent of revenues, peaking at 13.2 per cent of revenues in 2015/16 due to the one-time impact of the hospital project, before moving into a surplus equal to 4.0 per cent of revenues in 2016/17.

Following the announcement of the budget Standard & Poor's says the state's AA/A-1+ issuer credit ratings and stable outlook are not immediately affected. In a June 6 report the rating agency says: "The budget mitigates revenue pressures and reduces the impact of new spending commitments through additional savings measures, the use of provisions made in earlier budgets, and revenues from external parties, primarily the Commonwealth."

S&P concludes: "In our view, South Australia's fiscal 2014 budget indicates that the state's finances will develop in line with our expectations. We consider upside pressure within the rating horizon - of approximately two years - as remote. Downside pressure over the same period is not considered likely, but could arise from ongoing cash operating deficits that increase the state's debt burden toward 120 per cent of revenues."

SAFA's funding strategy

SAFA anticipates that in the coming fiscal year it will refinance the June 2014 select line by issuing another 10-year bond. It will also look to increase its outstandings in the June 2019 line to over A$2 billion, as with its other select lines. SAFA anticipates that the maximum amount in any select line will remain capped at A$2.5 billion.

In 2013/14 SAFA also plans to refinance the 2013 floating-rate note (FRN) with another short-dated FRN.

SAFA's projected outstandings by instrument type (A$bn)

Source: South Australia Government Financing Authority June 6 2013