Successful Financial Management
WATC funds the State’s initiatives at the lowest possible cost through our access to domestic and international capital markets.
The 2018/19 financial year saw WATC lend $7.1 billion to clients, issue $8 billion in debt and manage over $10.4 billion in investment funds.
Funding Clients’ Needs
During 2018/19, WATC issued approximately $8 billion in benchmark bonds and floating rate notes that were used to refinance $5 billion of 2018/19 maturities, a further $2 billion refinanced upcoming maturities in the 2019/20 year, $0.5 billion was used to pre-fund client borrowing requirements in the 2019/20 year and approximately $0.5 billion funded the purchases of liquid assets. In addition, we utilised our short term domestic and offshore Euro Commercial Paper programs to fund client and our own liquidity requirements. We contributed to State activities through the provision of $7.1 billion in funding to clients, mainly in debt refinancing. The agencies whose borrowings grew used the funding to deliver upon expanded government objectives such as Keystart, supporting transitional finance solutions for affordable home ownership that also provides economic stimulus for the construction industry, and the Public Transport Authority, supporting projects like the METRONET Forrestfield Airport Link. Most importantly, client debt repayments exceeded the amount of new loans and refinancing activities. Going from a decade long annual average increase of $3.8 billion, 2018/19 saw the total of outstanding client debt fall by $485 million. This is a significant, and positive, outcome for the State.
WATC plays an important role in the management of public sector finances through the provision of a comprehensive range of treasury management services, including the management of investment portfolios. At 30 June 2019, WATC managed in excess of $10.4 billion in investment funds in our own name and in that of our clients. This includes five investment portfolios managed on behalf of three clients, with an average annual investment balance in excess of $4.8 billion. These investment portfolios achieved returns that outperformed established benchmarks.
Over 2018/19, our clients experienced lower borrowing costs, as the general level of interest rates fell and relativities between WATC and our equivalently rated issuer peers narrowed significantly. This was a result of an improvement in the State’s revenue combined with our successful administration of the State’s borrowing program. Additional savings to the State were found through WATC providing public sector agencies access to foreign exchange markets at wholesale pricing. During 2018/19, we executed over $160 million of foreign exchange transactions in 9 currencies on behalf of 20 clients.
Furthermore, as part of Standard & Poor’s assessment supporting Western Australia’s credit rating upgrade, in October 2018, they formally recognised the improved representation of the State’s liquid assets. This was achieved through WATC’s maintenance and expansion of our monthly data collection of agencies’ liquid financial assets held outside of the Public Bank Account (PBA) arrangements. It also facilitated a reduction of $1 billion to the targeted level of liquid financial assets held within the PBA. This reduced the State’s borrowing requirement and enabled the realisation of savings (expected to be $44 million in net interest costs over the budget out years) that were previously announced within the 2017/18 State Budget.
The borrowing program for 2019/20 is estimated at $7.4 billion, comprising $1.1 billion of new money, $6.4 billion of refinancing and a $0.2 billion increase in WATC’s liquidity portfolio.
In 2019/20, WATC expects to issue a new floating rate note in the 4-5 year maturity band and will explore opportunities to extend the tenor of our fixed rate curve in 10-15 year maturities.
In collaboration with the Department of Treasury, expand the scope of the monthly data collection of liquid financial asset holdings of public sector agencies outside of the PBA to facilitate assessment of whole-of-state financial counterparty exposure, as a next step towards better understanding the State’s overall financial risk profile.
Undertake an extensive review of the current model underpinning the client lending strategy.
Work with the Department of Treasury to facilitate the review and restructure of the Future Fund into the Future Health Research and Innovation Fund.