This chapter provides details of the Territory’s gross and net debt position, including disaggregation for the general government and public trading enterprise sectors.
New Borrowings
There are no new general government borrowings projected during the 1999-2000 financial year. It has been anticipated that there will be a need to undertake new borrowings through the Central Financing Unit (CFU) on behalf of the ACT Electricity and Water Corporation (ACTEW) for approximately $300m.
Annual Rating Exercise
Standard and Poors Australian Ratings affirmed the Territory’s long term rating at AAA and its A1+ short term rating, on 23 April 1999.
Gross Territory Debt
The following table provides a breakup of the total debt owed to external entities, and principal and interest payments during the 1998-1999 financial year:
Table 6.1.1
Gross Debt 1998-1999
Debt as at 1-Jul-98 | Projected Principal Repayments | Projected Interest Payments | Projected Total Payments | Projected Debt as at 30-Jun-99 | |
|---|---|---|---|---|---|
| Commonwealth | |||||
| ACTION (Land & Buildings) | 13 857 | 554 | 1 742 | 2 296 | 13 303 |
| Housing | 258 469 | 4 984 | 11 631 | 16 615 | 253 485 |
| ACTEW (Water & Sewerage) | 50 365 | 4 092 | 5 606 | 9 698 | 46 273 |
| General Purpose Capital Advances | 26 616 | - | 3 321 | 3 321 | 26 616 |
| Sub Total | 349 307 | 9 630 | 22 300 | 31 930 | 339 677 |
| Borrowings Managed By CFU | |||||
| Inscribed Stock (1) | 117 770 | - | 12 047 | 12 047 | 118 184 |
| Samurai Bonds | 71 092 | - | 3 526 | 3 526 | 71 092 |
| Domestic Retail Bonds | 55 000 | - | 3 113 | 3 113 | 55 000 |
| Commercial Paper | |||||
| - Refinanced Cwlth Debt | 18 741 | 3 737 | 1 842 | 5 579 | 15 004 |
| Sub Total | 262 603 | 3 737 | 20 528 | 24 265 | 259 280 |
| TOTAL | 611 910 | 13 367 | 42 828 | 56 195 | 598 957 |
| - Off-budget Housing financing | 45 529 | 35 529 | 3 232 | 38 761 | 10 000 |
| TOTAL | 657 439 | 48 896 | 46 060 | 94 956 | 608 957 |
(1) The increase of outstanding principal is due to the amortisation of the inscribed stock during the year. The original issue of inscribed stock was at a discount to the face value.
The following table provides a breakup of the estimated total debt owed to external entities for the 1999-2000 financial year.
Table 6.1.2
Gross Debt 1999-2000
Estimated Principal Repayments | Estimated Interest Payments | Estimated Total Payments | Estimated Debt as at 30-Jun-00 | Estimated Debt as at 1-Jul-99 | |
|---|---|---|---|---|---|
| Commonwealth | |||||
| ACTION (land and buildings) | 554 | 1 672 | 2 226 | 12 749 | 13 303 |
| Housing | 5 205 | 11 407 | 16 612 | 248 280 | 253 485 |
| ACTEW (water and sewerage) | 4 092 | 5 140 | 9 232 | 42 181 | 46 273 |
| General Purpose Capital Advances | 13 951 | 2 484 | 16 435 | 12 665 | 26 616 |
| Sub Total | 23 802 | 20 703 | 44 505 | 315 875 | 339 677 |
| Borrowings Managed By CFU | |||||
| Inscribed Stock (1) | - | 12 047 | 12 047 | 118 598 | 118 184 |
| Samurai Bonds | 71 092 | 1 431 | 72 523 | 0 | 71 092 |
| Domestic Retail Bonds | - | 3 113 | 3 113 | 55 000 | 55 000 |
| Commercial Paper | |||||
| - Refinanced Cwlth Debt | 3 737 | 1 562 | 5 299 | 11 267 | 15 004 |
| - ACTEW Borrowings | - | - | - | 300 000 | - |
| - Refinanced Samurai Bonds (2) | - | 2 003 | 2 003 | 71 092 | - |
| Sub Total | 74 829 | 20 156 | 94 985 | 555 957 | 259 280 |
| TOTAL | 98 631 | 40 859 | 139 490 | 871 832 | 598 957 |
| - Off-budget Housing financing | 10 000 | 230 | 10 230 | 0 | 10 000 |
| TOTAL | 108 631 | 41 089 | 149 720 | 871 832 | 608 957 |
(1) The increase of outstanding principal is due to the amortisation of the inscribed stock during the year. The original issue of inscribed stock was at a discount to the face value.
(2) Rollover of Samurai Bonds debt from November 1999.
Total debt is forecast to increase by $263m over 1999-2000. This is attributable to the new debt raised on behalf of ACTEW, less the repayment of existing debt. The borrowing on behalf of ACTEW is matched by an equivalent receivable in the general government sector balance sheet and therefore has no impact on the net assets of the general government sector.
Commonwealth Debt
The level of debt owing to the Commonwealth as at 1 July 1999 will be $339.677m. By the end of the 1999-2000 financial year it is estimated to reduce by $23.802m to $315.875m.
ACTION - (land and buildings)
At 1 July 1999 historical ACTION debt will comprise $13.303m for land and buildings. At 30 June 2000 the obligation to the Commonwealth is estimated to reduce to $12.749m.
Housing
The ACT Housing Trust was aligned with the Commonwealth/State Housing Agreement on 1 July 1987. At that time a level of debt ($286.747m) was determined in relation to land and capital works relating to property transferred to the Trust under the Rental Housing Scheme and for the previous Commonwealth investment in the Home Purchase Scheme.
Additional advances totalling $14.1m were provided by the Commonwealth in 1988-89 and 1989-90. In 1990-91, capital advances to the states and territories for housing were discontinued and replaced by grants under the Commonwealth/State Housing Agreement.
As at 1 July 1999 the level of outstanding advances will be $253.485m. By 30 June 2000 the debt is estimated to fall to $248.280m. On 1 July 1998, the Home Loan Portfolio was transferred to the Chief Minister’s Department (Office of Asset Management) which will make direct payments to the Commonwealth for servicing the debt related to the portfolio. All other debt servicing charges related to the housing advances will continue to be paid directly from ACT Housing to the Commonwealth.
ACTEW (water and sewerage)
Upon the transfer of the water and sewerage functions to the then ACT Electricity and Water Authority on 1 July 1988, the relevant Commonwealth Ministers agreed to a level of debt ($91.287m) to be assigned to ACTEW. Annual debt servicing payments have been paid to the Commonwealth Government since the assignment of the debt.
The amount of debt outstanding at 1 July 1999 will be $46.273m. As at 30 June 2000 the obligation to the Commonwealth is estimated to be $42.181m. All debt servicing charges relating to the water and sewerage advances are paid directly by ACTEW Corporation.
General Purpose Capital Advances
General Purpose Capital Advances were provided to the ACT by the Commonwealth in 1988-89 ($22.450m) and 1989-90 ($23.179m) on the same basis as advances to the States and Northern Territory. The advances are in the form of a number of Commonwealth Government securities which progressively mature until 2001.
Repayment arrangements in respect of the debt were agreed with the Commonwealth in 1991-92. The arrangements require that the Territory redeem the securities as they mature and meet the semi-annual interest costs as they arise. The Commonwealth will supplement the Territory for the additional borrowing cost that will be involved in refinancing the securities. The compensation is deducted from the redemption cost of the relevant securities. The outstanding advances at 1 July 1999 will total $26.616m. As at 30 June 2000 the balance of outstanding advances is estimated to reduce to $12.665m.
Borrowings Managed by the Central Financing Unit (CFU)
The Central Financing Unit is responsible for investing surplus funds of Government agencies and for centralising the borrowings of the Government. Four main sources of funds are currently managed by the CFU: Inscribed Stock issues in 1990-91 and 1995-96; an offshore Samurai Bond issue in 1996-97; a Domestic Retail Bond issue in 1997-98; and a $500m Commercial Paper Program providing access to short term funds.
Inscribed Stock
In 1990-91 the Territory issued $87.5m (face value) of ten year term debt by way of private placement. During 1992-93, $20m of the 1990-91 issue, which was borrowed in excess of budgetary requirements at that time, was repurchased and the debt was cancelled. During May 1991 and January 1992, a series of interest rate swaps were undertaken to hedge $30m of the borrowings. The effect of the swaps was to provide a margin to the Territory on the transactions of 1.24%. This equates to an annual saving of approximately $0.372m. At 30 June 1999 an amount of $67.214m of this issue of ACT Inscribed Stock will remain on issue. It matures on 15 November 2001.
In 1995-96 the Territory issued $50m (face value) of ten year term debt by way of private placement. At 30 June 1999 an amount of $50.970m of this issue of ACT Inscribed Stock will remain on issue. This matures on 15 July 2005.
Samurai Bonds
During 1996-97, more favourable interest rates offshore than domestically, provided an opportunity to refinance outstanding borrowings from 1994-95 and 1995-96 ($71m). These borrowings were refinanced by way of a Samurai Bond issue into Japan. The issue of Samurai Bonds was achieved with a saving of 20 basis points (0.20%) on domestic borrowing rates. This equates to an annual saving of approximately $0.143m. Prior to this the debt was funded through the ACT Commercial Paper Program. The bonds mature on 29 November 1999. The estimates provide for the debt to be rolled over using commercial paper. During 1999-2000 options will be explored for refinancing this debt at competitive rates.
Domestic Retail Bonds
During 1997-98, new borrowings ($55m) were undertaken by the CFU and on-lent to ACTEW Corporation. The Commonwealth Bank of Australia (CBA) was mandated to arrange and manage the bond issue following a selective tender process. The borrowings were funded by way of a domestic retail bond issue. The term of the borrowing is three years with a maturity date of 19 June 2001.
Commercial Paper
In 1991-92 the Territory borrowed $43m by way of its Commercial Paper Program to refinance the historical plant and equipment debt owing to the Commonwealth. This debt was owed to the Commonwealth at fixed interest rates of 11.45% and 12.57% (an average of 12.01%). The refinancing structure involves the use of a component of the Commercial Paper Program until 2002-03 and an amortising interest rate swap. The structure has effectively reduced the fixed interest rate cost from 12.01% to 10.34%, a saving of approximately $4.1m over the life of the loan. At 30 June 1999, approximately $15.004m will remain on issue.
In addition to the debt refinancing usage, the Program has been previously utilised to provide off-budget funding to ACT Housing for the implementation of the homebuyer housing assistance program. At 30 June 1999, an amount of approximately $10m will remain outstanding in relation to Housing funding. This program was brought to an end in 1996-97 and will be gradually wound down as outstanding loan repayments are received. $35.529m will be repaid during 1998-1999 and it is estimated that the balance of $10m will be repaid during 1999-2000.
At 30 June 1999, an estimated $25.004m of Commercial Paper will remain on issue.
During 1999-2000 additional borrowings will be raised by the most beneficial means available at the time. The borrowings, for simplicity, are shown in Table 6.2.2 as being part of the ACT’s Commercial Paper Program. An estimated $300m will be borrowed on behalf of ACTEW Corporation.