NZ Post credit rating outlook revised to stable on Kiwibank dividend, asset sales

Standard & Poor's affirmed NZ Post's A+ long-term and A1 short-term ratings.

New Zealand Post, the state-owned mail and distribution service, had the outlook on its credit rating revised up to stable as the start of dividends from its Kiwibank unit and a series of asset sales shored up its balance sheet.

Global ratings agency Standard & Poor's affirmed NZ Post's A+ long-term and A1 short-term ratings, while lifting the outlook to stable from negative, it said in a statement. The outlook revision reflected the state-owned enterprise's stronger financial position after selling assets, and the growing dividend flows from Kiwibank. NZ Post's banking subsidiary's credit rating was also affirmed at A+/A1, and the outlook revised up to stable from negative.

"The stable outlook reflects our view that significant and growing dividends from Kiwibank, the group's conservative approach to shareholder returns, and its progress in improving the cost base of its mail operations should underpin the group's 'minimal' financial risk profile and offset structural revenue pressures at the 'A+' rating level," S&P credit analyst Paul Draffin said.

"The rating affirmation and outlook revision reflect the material improvement in NZ Post group's financial risk profile over the past 12 months, which has offset pressure on the group's credit profile from ongoing structural revenue erosion in the core mail business," he said.

Earlier this month, NZ Post sold its Converga business process outsourcing division for an undisclosed sum as part of a restructure of its mail business, where digital delivery is overtaking traditional physical services. Last year, it sold its Australian courier business, Couriers Please, to Singapore Post for A$95 million.

S&P said the asset sales helped reduce NZ Post's debt-to-earnings before interest, tax, depreciation and amortisation ratio below 1.5 times, and the ratings agency expects that improvement will continue.

"We believe that the government shareholder remains supportive of the group maintaining a strong balance sheet as NZ Post executes its transformation programme to improve the profitability of the group's core mail operations," the agency said.

If NZ Post can't maintain the improved risk profile or the restructuring doesn't ease the pressure on the mail business, S&P said its rating may be reduced.

Kiwibank's revised rating outlook mirrors the change in its parent, which S&P said reflected NZ Post's unconditional guarantee for the lender's senior obligations.

"The most likely scenario for Kiwibank contributing to rating pressure on NZ Post would be a weakening in the bank's business profile," S&P said. "We believe the bank's business would be under pressure if there were a prolonged period of slower organic growth and reducing net interest margins relative to the New Zealand major banks and system average, which could be indicative - among other things - of a structural decline in Kiwibank's business franchise."