Successful Financial Management
WATC continues to be flexible and adaptable in supporting the financial requirements of the State through the current challenging times.
The 2019/20 financial year saw extreme highs and lows in the global economy and financial markets, from equity markets hitting record highs in February (on the back of the Phase One US/China Trade Deal) to the RBA slashing interest rates to record lows in March amid coronavirus‑driven recession fears. Against this backdrop, WATC successfully delivered the State’s borrowing program, issued a number of syndicated benchmark bonds and floating rate notes, and achieved results that outperformed established benchmarks for our investment portfolios.
Economic and Market Conditions
The global and Australian economies have experienced the most severe downturn in decades resulting from the COVID-19 pandemic and the measures taken to contain it. As the crisis escalated in early March, financial conditions tightened substantially, with periods of dysfunction in some markets. With unprecedented fiscal and monetary policy easing rolled out, financial market volatility has declined. Since the introduction of the yield curve control by the RBA in late March, 3-year Commonwealth bond yields have been in line with their target of around 0.25 per cent, while 10-year yields have been relatively stable at historically low levels. Success to date in containing the pandemic to globally low rates of infection is resulting in the impact of the crisis on the Australian and Western Australian economy being smaller than first feared. However, given the unprecedented nature of the crisis, there is still much uncertainty around the economic outlook.
WATC is an experienced provider of innovative investment services, including a range of competitive investment products and an independent advisory service, which ensures an optimal financial solution for individual client’s investment needs is achieved.
WATC manages five investment portfolios on behalf of three clients. These clients have chosen to outsource their investment management function in order to improve governance and enhance portfolio returns by accessing the experience, expertise, systems, pricing and oversight that comes with the scale of operations undertaken by WATC in both domestic and offshore markets. All client portfolio returns outperformed their benchmarks. At 30 June 2020, WATC managed in excess of $13.6 billion in investment funds in our own name and in that of our clients.
This financial year saw an increase in funding activities for WATC. We lent $11 billion to clients (up from $7.1 billion), the majority of which (approximately $10.6 billion) was related to refinancing loans that matured throughout the financial year. It also included forward funding $3.3 billion of client loans that were set to mature in July 2020. To achieve this, we issued approximately $11 billion in benchmark bonds and floating rate notes (an increase of $3 billion from last year), including one tender of the existing 2029 benchmark bond, one new syndicated 2031 benchmark bond (raising $1.5 billion), two new syndicated non benchmark bond issues, raising $0.7 billion across two long dated lines (2034 and 2041) and two new syndicated floating rate notes (raising $2.2 billion). This funding was used to:
The borrowing program at 30 June 2020 for 2020/21 is estimated as follows:
|Term Funding Requirement||$b||$b|
|New Money Program (estimated)*||1.1–3.0|
|Less Pre-funded New Money||-0.8|
|Net New Money||0.3–2.2|
|Benchmark Bond – (22/07/20)||2.3|
|Less Pre-funded Bond Maturity||-2.3|
|Floating Rate Note – (10/03/21)||2.0|
|Estimated Term Funding Requirement||2.3–4.2|
|* To be revised post the WA State Budget, which will be handed down on 8 October 2020.|
In 2020/21, WATC expects to issue a new floating rate note with a five year maturity and will explore opportunities to fill gaps in its bond maturity curve.
Subject to market conditions, we will continue to tap, tender and syndicate (when appropriate) current outstanding bond and floating rate note lines to support market liquidity and meet borrower needs.
We will consider alternative approaches to investor engagement in light of national and international travel restrictions, which are likely to apply in the medium term due to measures to restrict the health impact of the COVID-19 pandemic.