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Annual Report of the Treasury for the Year Ended 30 June 2014

Permanent Legislative Authority Funding for New Zealand Debt Management Office

What is Intended to be Achieved with this Appropriation

This appropriation is intended to achieve the administration of the Crown's financing requirements so as to raise sufficient funds to finance the Crown's cash deficit while minimising the cost to the Crown of such borrowing.

Scope of Appropriation

During 2013/14 the Treasury's Debt and Related Financial Asset Management functions are funded through the three Permanent Legislative Authorities (PLAs) set out below.

  • Administration of Crown Borrowing PLA – This appropriation is limited to expenses incurred in connection with administering borrowing by the Crown, as authorised by section 61(1) of the Public Finance Act 1989.
  • Administration of Derivative Transactions PLA – This appropriation is limited to expenses incurred in connection with administering derivative transactions of the Crown, as authorised by section 65H(2) of the Public Finance Act 1989.
  • Administration of Investment of Public Money PLA – This appropriation is limited to expenses incurred in connection with administering the investment of public money, as authorised by section 65J(1) of the Public Finance Act 1989.
  • As of 1 July 2014 three PLAs are being merged into one appropriation: Administration of Crown Borrowing, Securities, Derivative Transactions and Investment PLA. The combined PLA is intended for the same purpose.

Significant Work Completed

During the year, the Treasury:

Borrowing programme

  • Issued $8 billion of government bonds, achieving the targeted programme size. This compared to $14 billion in 2012/13.
  • Introduced a 2030 maturity inflation indexed bond, with an initial issue via syndication raising $2.5 billion from the market. This transaction won the Kanga News 2013 New Zealand Domestic Bond Deal of the Year.
  • Ran a buy-back programme which enabled investors to reduce holdings of the bond maturing in April 2015 by $2.1 billion, providing more liquidity for investment into longer term bonds.

Marketing efforts and interactions with international stakeholders and credit rating agencies

  • Promoted government bonds, and New Zealand generally, in local and international markets. This included overseas investor missions to the UK and Europe and support of inbound investor visits. These developed and strengthened intermediary and investor relations.
  • Accompanied the Minister of Finance on visits to Hong Kong, Singapore and the US to participate in investor and rating agency presentations, including updates on the New Zealand economy and the NZDMO issuance strategy.
  • Participated in, and presented at, a number of investor and sovereign peers conferences and other fora.
  • Engaged with the three rating agencies (Moody's, Standard & Poor's and Fitch) to assist them in their assessments of New Zealand's creditworthiness. This included briefing them on the developments in the New Zealand economy, organising meetings with relevant officials, commentators and Ministers.

Derivatives programme

  • Successfully managed risks associated with the changing market value of the NZDMO asset portfolio within the average monthly Value at Risk (VaR) limit.
  • Investigated the implications and options involved in responding to international regulation designed to move over-the-counter derivatives towards being centrally cleared.

Investment programme

  • Managed a portfolio that at 30 June 2014 comprised marketable securities valued at $3.871 billion, deposits of $64 million and a cash balance of $3.414 billion. These assets were used to fund Crown operations, to provide short-term liquidity if required and to help repay debt maturities as they fall due.
  • Assets were invested in a high credit quality portfolio, predominantly made up of AAA- and AA- rated securities.

Treasury services

  • Provided Treasury services, and administered loans, to other parts of the Crown according to government policy. These services provide net cost savings to the Crown, through centralised borrowing and lending activities. This results in a lower debt servicing expense for the Crown than individual entities borrowing separately. Central treasury management saves on transaction costs and provides risk management benefits to the Crown.

Technology platform redevelopment

  • Commenced a project to progressively replace the existing platform that manages the end-to-end transaction capture, settlement and reporting functions for NZDMO. The creation of the Business Information Hub will enable increased functionality, flexibility and resilience in key processes. The project with take several years to fully implement, with the operating infrastructure and revaluation curves module having been completed in the 2013/14 year.
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