NZ Post credit rating slips, as focus shifts to competitive business

Credit ratings agency Standard & Poor’s has lowered New Zealand’s credit rating in light of continuing letter volume declines, and the group’s shift in focus towards competitive parcels and banking services. New Zealand Post’s standalone credit profile has been lowered from “bbb+” to “bbb”, while its short-term/long-term credit rating has slipped from “AA-/A-1+” to “A+/A-1”.

The credit ratings agency had affirmed New Zealand Post’s credit rating back in February 2012, while amending its outlook to “negative” over the mail volume concerns.

The outlook has now returned to stable, but with the credit rating lowered, New Zealand Post’s banking division Kiwibank has also had its ratings lowered from “AA-/Negative/A-1+” to “A+/Stable/A-1”.

Standard & Poor’s said its ratings for Kiwibank ran alongside those of its parent company, reflecting the unconditional guarantee the Post provided for the banking division, with the bank representing about 70% of the group’s consolidated earnings. Kiwibank has a standalone credit profile of “bbb”.

Competitive

The agency said it was expecting the Post’s revenues to be increasingly focused on the more competitive parcels, express courier and financial services businesses with the ongoing structural decline of the core letter delivery operations.

Although this was where the growth was, it was also exposing the group to more risk, said the agency.

“Although these businesses have favorable growth prospects in the medium term, we consider these segments to be highly competitive,” said Standard & Poor’s. “At the same time, we expect the structural erosion in NZ Post’s standard-letter delivery business to continue.”

These factors led to the standalone credit profile for New Zealand Post slipping to “bbb”, said the agency.

It said there was still a “high” likelihood that the New Zealand government would step in to provide support in the event of financial distress at New Zealand Post.

New Zealand Post Chief Executive Brian Roche said while the rating change reflects the need for fundamental change in the letter mail business, the company was “well advanced” in putting the strategies in place to deal with these challenges.

“New Zealand Post has developed and is evolving the plans to achieve a sustainable physical network as well as continuing with the strategies of growing the bank and creating a digital future,” Roche said.