NZ Post says its balance sheet will have to wear the $100 million in capital Kiwibank needs to meet its regulatory requirements and replace an ageing banking system.
Testifying before Parliament's commerce committee today, chairman Sir Michael Cullen said the postal service operator had requested funding from the Government to meet the capital needs of its bank subsidiary, but hadn't received a definitive answer yet.
The board was operating on the assumption that no further funds would be forthcoming, which is "not surprising in the current situation", Cullen said.
That meant the state-owned enterprise would have to provide the additional Kiwibank capital, with the lender not yet profitable enough to fund its own capital requirements.
"We have relooked at where we are going and we believe we can certainly manage over the next couple of years without any further capital injection, but that assumes Post is in a position to put another $100m into Kiwibank over that two-year period," Cullen said
NZ Post has just completed a restructure of its operations, shedding non-core assets such as its stake in IT services provider Datacom and the sales of the NZ Post building in downtown Wellington, with the proceeds used to pay down debt.
Cullen said it is critical for the SOE to maintain its A-plus credit rating to keep a lid on its funding costs, particularly with regard to Kiwibank where a downgrade would translate into higher mortgage rates for borrowers.
"We have to maintain a credit rating really with an A in front of it rather than a B, which is less important for energy companies and so on," he said. "We are different because we are a much more varied business."
Ratings agency Standard & Poor's last year downgraded NZ Post by one notch because of its growing reliance on Kiwibank revenues amid declining mail volumes.
The select committee, which started almost an hour late, pressed NZ Post on its debt levels, particularly in light of the revelation the Government had urged Solid Energy to increase its debt in 2009.
Labour MP Clayton Cosgrove asked if the postal operator had faced a similar request.
Cullen said the SOE hadn't, but it was widely recognised that NZ Post operated on different metrics to its peers, as reflected by its dividend payments to Government which are capped at $5m per year.
- © Fairfax NZ News
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