Fitch's Tim Roche says Kiwibank capital raise unlikely to see credit rating downgrade but IPO probably would

Kiwibank's $500 million capital raise is unlikely to see its credit rating downgraded but an initial public offering (IPO) probably would, Fitch Ratings Senior Director Tim Roche says.

Fitch has an AA credit rating with a stable outlook on Kiwibank, two notches above its A+ ratings on ANZ NZ, ASB, BNZ and Westpac NZ. Roche says Kiwibank's rating is driven by the fact it's government owned. (See credit ratings explained here).

In July Finance Minister Nicola Willis gave Kiwibank approval to raise up to $500 million from New Zealand investors. This is after the Commerce Commission's market study into competition in the personal banking market last year recommended the Government, as Kiwibank’s owner, "should consider what is necessary to make Kiwibank a disruptive competitor, including how to provide it with access to more capital."

Willis said an additional $500 million of capital could support up to $4 billion of business lending or $10 billion of home lending.

"The $500 million would still see the Government have around 80% [of Kiwibank so] about 20% of the capital base would get eroded. At that point we're probably still okay at the AA. The more interesting juncture is probably the potential IPO that they're talking about two or three years down the track," Roche says.

In July Willis also said a future government might list Kiwibank on the share market, which would give it easy access to capital as needed, but that wouldn’t occur without a mandate from voters with the government maintaining at least 51% ownership of Kiwibank's parent company. Kiwi Group Capital.

Roche says an IPO would be interesting from a credit rating perspective.

"That one is more likely to have an impact on ratings for Kiwibank. Our standalone assessment for Kiwibank at the moment is BBB+, So there is quite a big difference between the two [AA is five notches higher]. It's not to say we'd go all the way to BBB+. It doesn't sound like it'll be a complete IPO, from what they've said the Government will hold a substantial portion of the equity still."

"At 51% it's still technically majority, but you'd want to see how much say minorities have in the running of the business," says Roche.

He's mindful, however, of the collapse of state-owned coal miner Solid Energy, which wasn't bailed out by the previous National Party-led government causing "a lot of problems for a lot of banks."

Ultimately Roche says a Kiwibank IPO would result in a Fitch credit rating downgrade;  "all other things being equal. But to where is the question."

Moody's has an A1 credit rating on Kiwibank with a stable outlook.

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