New Zealand Local Government Funding Agency Limited Analysis

Overview

The New Zealand Local Government Funding Agency (LGFA) is a Council-Controlled Organisation (CCO) operating under the Local Government Act 2002. LGFA specialises in financing the New Zealand local government sector, operating with the primary objective of optimising the debt funding terms and conditions for participating local authorities.

Among other things, this includes:

• Providing debt to participating local authorities at the lowest possible interest rates,
• Making longer-term borrowings available to participating local authorities, and
• Increasing the certainty of access to debt markets for participating local authorities

Performance

The following information was extracted from New Zealand Local Government Funding Agency Limited's half year results, released 28 February 2025:

Financial and operational performance

LGFA’s total interest income for the six-month period to 31 December 2024 of $683.2 million was an 18.2% increase over the 2023 comparable period ($578.1 million), while net operating profit of $8.6 million for the six-month period was a 65.4% increase on the 2023 comparable period ($5.2 million).

The increase in net operating profit reflected the growth in the balance sheet and the positive impact from the increase in the base lending margin on 1 July 2024.

Net operating profit was $142k above budget with total operating income below budget by $14k, with total operating expenses $156k under the budget. We are confident we will meet budget by the end of the current financial year. As our borrowing requirement has increased, we are having to source a greater proportion of our borrowing requirement from offshore markets. As a result, our Approved Issuer Levy (AIL) payment to Central Government is now our single largest expense. The AIL payment was $2.54 million for the six month period compared to $0.54 million for the comparable period a year ago.

The financial strength of LGFA was affirmed by Fitch Ratings who maintained our domestic currency credit rating at AA+ in October 2024. S&P Global Ratings affirmed our AAA/AA+ ratings in September 2024 and under their revised methodology, our SACP improved from AA- to AA+. Our credit ratings from both rating agencies remain the same as the New Zealand Government.

We are on track to meet almost all of our twenty-one performance objectives, with the only objectives not currently on track being the number of new Green, Social and Sustainability (GSS) loans and the amount of council lending. We recognise that it is a busy time for the Local Government sector and have therefore increased our sustainability capability through the appointment of a Back to contents Senior Manager Sustainable Finance. This will allow us to provide greater support to council and CCO members regarding sustainability and assist them with identifying eligible projects for GSS loans.

We continue to support the sector and promote best practice with our quarterly business updates, the annual shareholder borrower day, and economic updates for council and CCO members.