Auckland Council Green Bond Issue - Matthew Walker, Acting Group CFO John Mauro, Chief Sustainability Officer Andrew John, Funding Manager 18 June ...
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Auckland Council Green Bond Issue
Matthew Walker, Acting Group CFO
John Mauro, Chief Sustainability Officer
Andrew John, Funding Manager
18 June 2018
Important disclaimer The information in this presentation has been prepared by Auckland Council in relation to an offer of fixed rate green bonds by Auckland Council (“Green Bonds”). By listening to or reading this presentation, you acknowledge and agree to the contents of this disclaimer. Auckland Council makes no representation or warranty as to the accuracy, adequacy reliability, completeness or currency of any statements, estimates or opinions or other information contained in this presentation. This presentation has been prepared in good faith but has not been independently verified. Certain information and data contained in this presentation was derived by Auckland Council from other sources. This presentation may contain forward-looking information including estimates, forecasts and projections. This forward-looking information speaks only as of the date of this presentation and is based on assumptions which may or may not prove to be correct. No express or implied representations or warranties are, or will be, made by Auckland Council or any other person as to the accuracy or completeness of this forward-looking information or the reasonableness of any assumptions that underpin it. The forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by this forward-looking information. Any opinions expressed in this presentation reflect the judgement of Auckland Council as the date hereof, and do not bind Auckland Council. This presentation does not, and is not intended to, constitute an offer, invitation or recommendation by Auckland Council to any person to subscribe for, purchase or otherwise deal in any financial products. Any person considering investing in a financial product offered by Auckland Council must refer to the relevant offer document that has been expressly issued by Auckland Council for that purpose and the disclosures provided expressly in connection with those financial products and should take their own independent financial and legal advice on their proposed investment. The Green Bonds are offered under a simplified product disclosure statement (“PDS”). The PDS is available at www.companiesoffice.govt.nz/disclose. Investors should not purchase the Green Bonds until they have read the PDS. This presentation is proprietary to Auckland Council and may not be copied, distributed, disclosed or used without Auckland Council's express written consent. 2
Contents
Auckland Council Green Bond Issue 4
Group interim financial results highlights 13
Long Term Plan (LTP) 16
Funding approach and debt market activity 21
Green bond transaction overview 26
Summary financials 30
Contact details 34
Appendix 35
3
Auckland Council Green Bond Issue 4
Auckland Council Green bond
• Auckland Council to issue a NZD unsubordinated 5 year fixed rate
Green Bond, paying semi annual coupons
• Proceeds to be used in accordance with Auckland Council’s Green
Bond Framework to initially finance and refinance electric trains and
equipment
• Ranks pari passu with Auckland Council’s other bonds
• Lack of compliance with Auckland Council’s Green Bond framework,
the Climate Bonds Standard (including the loss of Climate Bond
Initiative certification) and related matters is not an event of default in
relation to the Green Bonds
• This Green Bond issue supports Auckland Council’s wider sustainability
agenda
5
Sustainability at Auckland Council
• Our approach to sustainability is framed by the Auckland Plan, our
long-term spatial plan to ensure Auckland grows and develops in a
way that will meet the opportunities and challenges of the future
(www.aucklandplan.govt.nz)
• The plan identifies six outcomes for Auckland in 2050 and a
Development Strategy that shows how Auckland will physically grow
and change over this time
• Sitting underneath the Auckland Plan are strategic action plans to
address key sustainability issues such as climate, water and
biodiversity
6
Sustainability at Auckland Council
• The Auckland Plan outcomes are strongly linked to the Sustainable
Development Goals (“SDGs”)
• The Auckland Plan articulates the SDGs within the Auckland context
and identifies the issue/action areas of most significance to
Aucklanders
• Delivering the Auckland Plan outcomes will support achievement of
the SDGs
7
Sustainability Track Record
• Refresh of Responsible Investment Policy to divest from fossil
fuels, controversial armaments, tobacco and gambling
• Commitment to a 40% reduction in greenhouse gas emissions in
the Auckland region by 2040
• Focus on the sustainability impacts of our buildings
• Adoption of an Auckland Council group sustainable procurement
framework
• Significant commitment to public and active transport within the
Auckland region (Auckland Transport Alignment Project)
• Use of Infrastructure Sustainability Council of Australia’s (ISCA,
www.isca.org.au) Infrastructure Sustainability rating scheme for
various infrastructure projects
• Membership of C40 Cities Climate Leadership Group
(www.c40.org)
8
Auckland Council Green Bond Framework
• Aligns with the International Capital Markets Association Green Bond
Principles 2017 (“GBP”) and therefore addresses the four pillars of :
Use of Process for Management Reporting
Proceeds Evaluation of Proceeds
and Selection
(Refer Appendix C for more details on the Green Bond Framework)
• Consistent with the Climate Bonds Standard (“CBS”)
Issuance
• Certification from the Climate Bonds Initiative (“CBI”), see Appendix A.
• Independently verified by EY as meeting the GBP and CBS, see
Appendix B
9
Auckland Council Green Bond Framework
Use of Proceeds
• Financing of projects and assets that deliver positive environmental
outcomes, such as the transition to a low carbon and climate resilient
future (“Eligible Assets”), or refinancing of corporate debt that supports
Eligible Assets
• Eligible Sectors:
Renewable Energy Efficient Waste
Energy Efficiency Buildings Management
Climate Sustainable
Sustainable Low Carbon
Change Water
Land Use Transport
Adaptation Management
10The Electric Multiple Units (EMUs)
Sustainability Benefits of EMUs
• Reduction in carbon emissions, air
and noise pollution (compared to
diesel alternatives)
• Greater comfort and efficiency of
EMUs in combination with faster,
more frequent service supports
efforts to increase public transport
patronage and broader
sustainability benefits for Auckland
• Greater carrying capacity per
• First EMUs commenced service carriage and ability to increase
in Auckland in 2014 overall train size
• Current value of EMUs is $425m • Improved access (wider doors and
• Value of EMUs to be purchased lower floors, automatic ramps for
in 2019-2020 is $136m mobility impaired)
11Auckland Council Green Bond Framework
Process for evaluation and selection and management of proceeds
• The process for project evaluation and selection is robust and includes
input from Treasury, Sustainability and Financial Control. New Eligible
Assets can be added over time if they meet the Eligibility Criteria
• Assurance / verification will be sought pre-issuance and at least once post
issuance for this Green Bond
• Transparent monitoring process in place to track the receipt and use of
proceeds at issuance and ongoing
• Use of Proceeds Reporting available annually, with impact reporting at
least once post-issuance
• All assurance / verification, certification statements publically available, as
is the Green Bond Framework via
https://www.aucklandcouncil.govt.nz/about-auckland-council/business-
in-auckland/Pages/investor-centre.aspx
12Group interim financial results highlights 13
Interim results - December 2017
For the period (NZ$m) 6 months to 6 months to 12 months to 30
31 Dec 2017 31 Dec 2016 Jun 2017
Rates revenue 1,698 1,628 1,641
Services and other revenues 1,305 1,149 2,488
Total revenue 3,003 2,777 4,129
Operating expenses 1,718 1,600 3,318
Finance costs 232 211 471
Total expenses 1,950 1,811 3,789
Operating surplus before
1,053 966 340
gains and losses
(Deficit) / Surplus after
976 1,336 640
adjustments
14Interim results - December 2017
As at (NZ$m) 31 Dec 2017 31 Dec 2016 30 Jun 2017
Cash 774 222 337
Total assets 49,163 45,750 47,359
Total borrowings 9,017 7,760 8,300
Total liabilities 12,398 10,751 11,583
Net assets 36,765 34,999 35,776
Net borrowings to total assets 16.8% 16.5% 16.8%
For the period 6 months to 6 months to 12 months to
(NZ$m) 31 Dec 2017 31 Dec 2016 30 Jun 2017
Operating cash flow 638 539 892
Investing cash flow (798) (591) (1,367)
Funding cash flow 600 145 678
15Long Term Plan (LTP) 16
LTP - Overview
• 10 year plan – undertaken every 3 years
• Sets out financial priorities within constraints of balancing operating
budget and maintaining AA/Aa2 credit rating
Key milestones Date
Mayoral Proposal November 2017
Adoption of consultation documents February 2018
Public consultation February - March 2018
Deliberations on consultation feedback April - May 2018
Adoption June 2018
• Key issues
Responding to growth – infrastructure needs
Environment – cleaning up harbours, beaches and streams
17LTP key proposals
• General property tax increases 2.5% - 3.5%
• Introduction of regional fuel tax and targeted rates:
Water quality
Natural environment
• Focus on managing operating expenditure
• Fully funding depreciation by 2025
• Increased capital expenditure programmes to supply infrastructure
18LTP - Capital expenditure
• Annual capital expenditure of $2.4 to $2.8b for a total of $26b over 10 years
(includes $2b via City Rail Link Limited and Crown Infrastructure Partners)
• Subject to Audit New Zealand sign-off and adoption by the Governing Body in
end June 2018
14,000
10-year budget 2015-2025
12,000
Proposed 10-year capital programme 2018-
10,000
2028
NZD million
8,000
6,000
4,000
2,000
-
Transport Water, wastewater and Parks and community Other
stormwater
19LTP - Financial overview
• Subject to Audit New Zealand sign-off and adoption by the Governing Body
in end June 2018
Debt to revenue
14,000 280%
260%
12,000
240%
10,000
NZD million
220%
8,000 200%
180%
6,000
160%
4,000
140%
2,000
120%
0 100%
2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2025/26 2027/28
Total revenue Total borrowings Debt to revenue threshold 270% Debt to revenue ratio
20Funding
approach and
debt market
activity
21Funding approach
• Diversity important – across domestic, Local Government Funding
Agency (LGFA) and offshore
• Spread of debt maturities
• Longer tenors
• Continue to develop offshore markets – 2 EUR benchmark issues
• Commitment to AA/Aa2 credit rating
• Development of a Green Bond Framework
22Funding strategy - Diversity
Auckland Council Group funding mix –
• Group debt of $9.02
December 2017
billion (58% NZD
domestic and 42% $3.77b, Retail bonds
offshore funding) NZD
Equivalent $1.01b,
• 10 offshore issues 42% 11% Wholesale
(AUD, CHF, EUR, and bonds
NOK)
$1.1b, 12% Bank facilities
• Weighted average
term of 5.8 years
$0.38b, 4% Commercial
• Backed by NZD1 paper
billion standby facility
$0.68b, 8% LGFA
• Funding via LGFA
capped at 40% of $2.08b, Offshore
their lending 23% funding
(currently 24%)
23Funding strategy - Refinancing and new debt
Debt maturity profile (as at 31 Dec 2017) – Group debt $9.02b
1,600
1,400
1,200
NZD millions
1,000
800
600
400
200
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2032 2033 2034
Financial year
Annual forecast group borrowing Projected group debt (financial years)
2,000 14,000
12,000
1,600
NZD millions
10,000
1,200 8,000
NZD Millions
800 6,000
4,000
400
2,000
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Financial year Financial year
New debt Refinancing
Based on draft LTP 2018-2028 Draft LTP - 2018-28 LTP 2015-25
24Security and credit ratings
Security
• Holders of the Green Bonds have benefit of Debenture Trust Deed
giving a charge over rates revenue and future rates revenue
• Rates rank ahead of all other claimants on property
• If appointed, commissioners or receivers have certain powers to
collect rates
Credit ratings
• Standard and Poor’s: AA (Stable Outlook)
• Moody’s: Aa2 (Stable Outlook)
• Both affirmed late 2017
• Rating target AA/Aa2 part of core treasury policy
25Green Bond transaction overview 26
Summary of terms and conditions
Terms Details
Issuer: Auckland Council
Issue price and principal amount: NZ$1.00 per Bond
Term and maturity date: 5 years maturing on Tuesday, 27 June 2023
Description of the debt securities: Unsubordinated, fixed rate bonds
Issue amount: Up to NZ$150,000,000 with the ability to accept up to NZ$50,000,000
oversubscriptions at Council’s discretion
Issuer ratings: AA (stable) / Aa2 (stable) (S&P/Moody's)
Expected issue ratings: AA/ Aa2 (S&P/Moody's)
Security: The Green Bonds are secured by a charge created by the Debenture Trust
Deed over all rates from time to time set or assessed by Auckland Council
and all rates revenue of Auckland Council and proceeds arising directly from
the collection of those rates
Purpose / Use of proceeds: The proceeds of this offer are intended to be allocated in accordance with
Auckland Council’s Green Bond Framework to the financing or refinancing of
Eligible Assets that align with the Eligible Sectors
The Supervisor of the Green Bonds (Trustee Executors Limited) has no
obligations in relation to the application of the proceeds of the Green Bonds
27Summary of terms and conditions
Terms Details
Minimum application amount: NZ$5,000 with multiples of NZ$1,000 thereafter
Interest rate: The Interest Rate will be fixed for the term of the Green Bonds. The Interest
Rate will be equal to the Base Rate plus the Margin on the Rate Set Date and
will be announced by Auckland Council via NZX on the Rate Set Date
Base rate: The semi-annual mid market swap rate for an interest rate swap from the
Issue Date to the Maturity Date as calculated by the Arranger on the Rate
Set Date in accordance with market convention with reference to Reuters
page ICAPAUKIWISWAP1 and expressed on a semi-annual basis, rounded to
2 decimal places, if necessary with 0.005 being rounded up
Indicative issue margin: 0.47% to 0.55% per annum
Selling restrictions: The selling restrictions included in the term sheet apply
Repo-eligibility: Application will be made to the RBNZ for the Bonds to be included as Eligible
Securities for Domestic Market Operations
Listing: NZDX
28Timetable – key dates
Date
Roadshow: Monday, 18 June 2018 (Wellington & Auckland)
Offer opening date: Monday, 18 June 2018
Offer closing date: Thursday, 21 June 2018 (bids due by 2pm)
Interest rate set date: Thursday, 21 June 2018
Issue date: Wednesday, 27 June 2018
Maturity Date Tuesday, 27 June 2023
Expected date of initial
Thursday, 28 June 2018
quotation and trading on NZDX:
Interest payment dates: 27 June and 27 December in each year up to and including the Maturity Date
First interest payment date: Thursday, 27 December 2018
29Group summary
financials
30Statement of financial performance - 31 December 2017
For the period (NZDm) Half year to Half year to Year to Year to Year to
31 December 31 December 30 June 30 June 30 June
2017 2016 2017 2016 2015
Rates 1,698 1,628 1,641 1,564 1,458
Other revenue 1,305 1,149 2,488 2,141 2,100
Total Revenue 3,003 2,777 4,129 3,705 3,558
Depreciation 423 430 874 828 778
Other expenses 1,295 1,170 2,444 2,210 2,278
Finance Costs 232 211 471 417 422
Total Expenses 1,950 1,811 3,789 3,455 3,478
Operating Surplus 1,053 966 340 250 80
(Deficit) / Surplus after
976 1,336 640 (231) (72)
adjustments
31 Source: Interim and annual reportsStatement of financial position - 31 December 2017
As at (NZDm) 31 December 31 December
30 June 2017 30 June 2016 30 June 2015
2017 2016
Cash 774 222 337 137 345
Total assets 49,163 45,750 47,359 44,679 42,167
Total borrowings 9,017 7,760 8,300 7,611 7,334
Total liabilities 12,398 10,751 11,583 11,027 10,088
Net assets 36,765 34,999 35,776 33,652 32,079
Total borrowings (gross) to total
18.3% 17.0% 17.5% 17.0% 17.4%
assets
Total borrowings (net) to total
16.8% 16.5% 16.8% 16.7% 16.6%
assets
32 Source: Interim and annual reportsStatement of cash flows - 31 December 2017
For the period (NZDm) Half year to Half year to Year to Year to Year to
31 December 31 December 30 June 30 June 30 June
2017 2016 2017 2016 2015
Operating cash flow 638 539 892 771 726
Investing cash flow (798) (591) (1,367) (1,338) (1,445)
Funding cash flow 600 145 678 358 854
Net (Decrease) / Increase in Cash 440 93 203 (209) 135
Interim Report 31 December 2017 available here
33 Source: Interim and annual reportsContact
Contact
details
details Acting Group Chief Financial Officer
Matthew Walker
Tel: + 64 9 977 6761
email: matthew.walker@aucklandcouncil.govt.nz
Treasurer
John Bishop
Tel: + 64 9 977 6598
email: john.bishop@aucklandcouncil.govt.nz
Funding Manager
Andrew John
Tel: + 64 9 977 6592
email: andrew.john@aucklandcouncil.govt.nz
www.aucklandcouncil.govt.nz
34Appendix A: CBI Certificate 35
Appendix B: External Assurance 36
Appendix B: External Assurance 37
Appendix C: Auckland Council Green Bond Framework
Process for Evaluation and Management of Proceeds
Selection
• Managed in accordance • Internal reporting systems will
with the Green Bond track the receipt and use proceeds
Framework by Auckland • Green Bond Framework includes
Council through its Green provisions for managing Green
Bond Working Group Bond proceeds that have not been
(“GBWG”) allocated to Eligible Assets at
• The GBWG consists of issuance or during the life of the
senior representatives Green Bond
from Auckland Council’s • Auckland Council will ensure that
Treasury, Chief all Green Bond proceeds are
Sustainability Office and disbursed to Eligible Assets within
Financial Control 24 Months of issuance of the bond
38Appendix C: Auckland Council Green Bond Framework
Reporting and Disclosure
• Auckland Council recognises investor interest in transparency of
reporting and disclosure and intends to make the following information
available when and as described via
https://www.aucklandcouncil.govt.nz/about-auckland-
council/business-in-auckland/Pages/investor-centre.aspx
Item Timing
Framework At the time of first issuance under this Framework
Assurance At initial issuance and when subsequent assurance occurs, to
Statements the extent allowed by the assurer
CBI Certification Once off at issuance, for any CBI certified Green Bond
Use of Proceeds Use of Proceeds Report: Annually, in line with Auckland
Report Council’s reporting timeline
Impact Report Impact Report: At least once post-issuance, depending on
the nature of the asset and predicted impacts
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