Mr BAYLEY – The annual report is clear in relation to key limitations for TASCORP. Its cost of borrowings and access to debt capital markets depend on the state’s credit rating, over which the corporation has no control. While S&P’s credit rating stayed the same, it did downgrade the outlook from stable to negative. I’m interested in your perspective on this and what kind of scenario modelling you’ve done going forward in relation to some of the debt facilities that Mr Willie referred to. How are you dealing with this increasingly uncertain international credit rating situation?
Mr FERRALL – I think for context, you’ve got to start with the point that Tasmania has a high credit rating in any sort of international context, and so, although S&P have put a negative outlook revision against Tasmania’s rating, it’s not necessarily going to lead to significant, or even any, cost increases in relation to our debt.
As I said a moment ago, I think the first point you’ve got to start with is that even if there was a rating downgrade, it’s not necessarily going to have a significant impact on the debt portfolio. There are a range of other factors which influence the cost of debt to the state. We look at those from a risk management point of view and we look at what might occur in a risk sense to TASCORP’s portfolio, given certain changes. But we don’t take a position in relation to trying to say whether a particular outcome is going to occur in relation to a rating.
Mr BAYLEY – Surely, you must do some scenario planning around that, though, and forecast different options, depending on where some of those ratings might land?
Mr FERRALL – The short answer is not really, because you can’t do that in a simple scenario sense. I think what you’re implying is that a lower rating, all other things being equal, should lead to a higher cost of debt. That is true generally, in terms of all things being equal.
Mr BAYLEY – That’s effectively what your annual report says, is that not right?
Mr FERRALL – Yes, it is correct. But it’s a question of all things being equal. Historically, we’ve had situations where Tasmania has had a rating change and TASCORP margin has not moved in sync with that change. It’s because there are a whole range of factors that investors look at when they’re looking at effectively buying our bonds. We’ve got a very strong overlay domestically in this country of the strength of the national government, which impacts overseas investors particularly in terms of looking at TASCORP as a sub‑sovereign.
We might have a very big issue in a particular period of time that we need to make. Investors might have limitations that they could hold in respect of, say, TASCORP or New South Wales’ TCorp or any of the other sub‑sovereigns in Australia. All of those factors start to influence what the margin is or the differential might be that we might pay, as opposed to another equally rated entity.
Mr BAYLEY – Are you basically saying you’ll cross that bridge when you get to it?
Mr FERRALL – Well, we would cross that bridge when we get to it. But, you know, you’ve got to understand that we have a relatively long portfolio. Individual changes or particular movements in the yield curve going forward don’t necessarily have a one-to-one impact in terms of the cost of debt. Figuratively, we might have a seven-year portfolio rolling average, going forward, of X per cent. If rates moved, the whole portfolio is not going to go up by the movement in the rates. We’re not refinancing at all. We manage our refinancing as much as possible, we have a relatively long portfolio and we don’t pick or choose, or guess what rates might be.
Mr BAYLEY – In the Legislative Council hearings on Tuesday, Mr Baker responded to questions about Macquarie Point Development Corporation borrowings that there’s no borrowings at this stage, no formal requests for borrowings. I was surprised at that, given the Budget. It is clear in budget paper 1 that additional expenditure outside of the forward Estimates, admittedly a few years away, is anticipated to be met through short‑term borrowings by the Macquarie Point Development Corporation. This is for the stadium project.
The Project of State Significance documents details a significant cost blowout at $145 million that’s unfunded at the moment, and the AFL deal locks Tasmanian taxpayers into every bit of cost blowout. It feels inevitable that Macquarie Point Development Corporation may come knocking. Have you had any informal engagement with Macquarie Point Development Corporation about those borrowings, any informal approaches?
Mr FERRALL – I personally haven’t had any approaches from the corporation. I think on Tuesday Heath indicated that there’d been one meeting.
Mr BAKER – We’ve had introductory meetings with all the new statutory authorities that have been established over the last few years. Macquarie Point has been a client for quite a while, but there has been no formal request for borrowing requirements. Nor have they – yeah, that’s probably all I can say at this –
Mr BAYLEY – What does being a client mean in the context of no borrowings then? Can you explain that?
Mr BAKER – Macquarie Point initially, some years ago, received a considerable amount of money from the federal government, so they can actually invest money with TASCORP. So, we assisted them looking through their options. We’ve had an ongoing relationship with Macquarie Point for quite a while, but never had any requests or imminent requirements for borrowings.
Mr BAYLEY – Do you anticipate that they will, or you have no read on what their intentions and needs are going to be into the future?
Mr FERRALL – It’s a matter for them and the government in terms of how the development is ultimately funded and supported.
Mr BAYLEY – The budget does detail the fact that it’ll be through borrowing, short‑term borrowings.
Mr FERRALL – We will engage with the clients on the other side as they develop their proposals for borrowing. But at this stage, we haven’t got a borrowing proposition from Macquarie Point.
Mr BAYLEY – After directing the Macquarie Point Development Corporation to pursue the stadium project, rewriting a development master plan and paying out some developers who had been contracted to deliver on that original development master plan, the then minister, now Treasurer, Mr Barnett, rewrote the ministerial statement of expectations, conspicuously dropping the requirements around commercial activities. This bit was dropped between 2022‑2023 and 2023-24:
The minister expects the corporation to only carry out commercial activities that are:
- Consistent with the Corporation’s principles, objectives and functions.
- Appropriately costed and carefully managed, with the objective that, in the absence of a higher priority, the activities deliver a commercial return acceptable to the board.
- Compliant with the government’s competitive neutrality principles.
It hasn’t been updated yet, there is no new statement of ministerial expectations.
Chair, if Macquarie Point Development Corporation did come knocking, looking for funding, would you be concerned, given that the government no longer expects that their commercial activities be appropriately costed and carefully managed? Should there not be a ministerial expectation that their work be appropriately costed and carefully managed? Would that be something you would take into consideration?
Mr FERRALL – I don’t think I can address the statement of expectations for another corporation. I think that would be quite inappropriate for me to make comments about that.
In terms of TASCORP’s position in terms of potential lending, we would treat Macquarie Point Development Corporation like any of our other clients in that what we would expect is a satisfactory and sort of robust business case that supports the borrowing. We’d look at their capacity to borrow, we’d look at whether we believe they can meet the repayments, we look at their revenues, we look at their expenditures. Then we make an assessment as to lending to them or otherwise in a supported or unsupported basis going forward.
But in terms of a change in their statement of expectation, I think that’s a matter for the corporation and a matter for the minister.
Mr BAYLEY – Chair, I will return to that statement of ministerial expectations. I am not asking you necessarily to comment on it in the context of why or why not the minister may have written that out of the statement of ministerial expectations. I am asking whether TASCORP would take into account the fact that the government no longer has those expectations of that corporation in any considerations of debt. I look at the Tasmanian Planning Commission and some additional information they have requested of the proponent that goes, I think, to this very issue. They’ve asked for the proponent to provide more information to include debt servicing costs –
CHAIR – Mr Bayley, you have to ask the question.
Mr BAYLEY – The question is why wouldn’t the fact that the government no longer has this expectation for the business, Macquarie Point Development Corporation, to appropriately cost and carefully manage its commercial activities be a consideration of TASCORP in any loan application?
Mr FERRALL – If you can give you an example of how we look at a loan application, essentially, TASCORP looks at the forward cash flows, prospective cash flows, of the business to establish whether the business can support the debt. We also have in most cases a statutory guarantee from the state of Tasmania, effectively from the Treasurer, in relation to that debt. We satisfy ourselves as TASCORP, as a corporation, that the entity can support the debt, so regardless of what might be in that statement of expectations, we would look at the sources of funding for Macquarie Point, the revenues that it may or may not have going forward and whether that can support the level of debt – hypothetically, because we don’t have a request yet ‑ that is requested.
We might look through that statement of expectations in that it won’t have a bearing in terms of what we would look for to ensure that we undertake our role appropriately as TASCORP and as a lender to the entity.
Mr BAYLEY – How does TASCORP look at this, then, in the context of the proposition that the stadium would be transferred to Stadiums Tasmania, and as I understand it from the Budget, the POSS documentation would be transferred to Stadiums Tasmania as well? How would you make an assessment of the Macquarie Point Development Corporation’s application, given that ultimately that asset and the debt liability would be transferred to another entity altogether?
Mr FERRALL – We would look at something like that in terms of what that implies or means for the risks to TASCORP? I’m not trying to be difficult but it’s a bit hypothetical because we don’t have a borrowing request at this point and we don’t have the relevant facts in terms of what the intention might be going forward. When that is available, we would look at that and consider whether that creates risks to TASCORP as a lender.
Mr BAYLEY – Granted you don’t have it before you at the moment.
CHAIR – We’ll go back to Mr Willie.
Mr BAYLEY – I’m not going to labour this, but I do have one more line of questioning around the statement of ministerial expectations and the Macquarie Point Development Corporation. The question really goes to whether or not the Treasurer can direct you to provide finance. Other government businesses can be directed to enter into onerous contracts, for example, and onerous commercial arrangements. The early financial projections around the stadium project is that it’s a loss-maker over a 20-year period.
Going back to the issue of the statement of ministerial expectations, the lack of information in the POSS planning documentation and the fact the Planning Commission had to come back and ask for more of this financial information – if you were not satisfied, based on all of the calculations and the assessments that you’ve talked about before, of the capacity of the business to support the debt, can you be directed, and how does the board deal with that situation?
Mr FERRALL – Well, we haven’t been directed. Again, it’s hypothetical in one sense, but it’s also – there are limitations around what directions can be given, particularly for a government business enterprise, so there are limitations in a Treasurer’s power to effectively direct TASCORP to lend. We will or would continue to meet our legislative requirements in terms of ensuring that we take appropriate steps in terms of lending, that we don’t expose the state or TASCORP to excessive risks, et cetera. Again, I’m not trying to avoid the question. I understand what you’re trying to ask, but the circumstances where a Treasurer may feel that he or she wants to direct TASCORP, I think would be exceptionally limited and there are quite limited –
Mr BAYLEY – What would they be limited to, do you think?
Mr FERRALL – Well, they’re limited because the GBE Act in general doesn’t provide provision for the Treasurer to direct a GBE.
Mr BAYLEY – So, Hydro, for example, can be directed to enter into an onerous contract with a power generator.
Mr WILLIE – Other shareholder ministers can issue directions.
Mr FERRALL – If you look at the restrictions in the GBE Act and you look at the TASCORP Act, then, you know, it’s quite limited.
Mr BAYLEY – I guess that’s what I’m asking. You said there’re limitations. So, what would be the limited situations then? It doesn’t preclude it – limited to –
Mr FERRALL – I mean, ultimately, we’d need to take, you know, SG advice if it got to that point, in terms of, you know, whether the direction ultimately was lawful, but my understanding is that the Treasurer of the day could not currently direct TASCORP to lend. Just to clarify that, there are other provisions in the act which might enable the treasurer of the day to have task or take over a particular debt which is different to a direction to lend in circumstances when TASCORP did not want to lend.
Mr BAYLEY – Treasurer, as the minister, you were the one that wrote out this section of expectations around commercial activities. You dropped the expectation that the corporation operate consistent with principles, objectives and functions and that it undertake commercial activities that are appropriately costed and carefully managed, with the objective that in the absence of a higher priority, the activities deliver a commercial return acceptable to the board, and also that the corporation comply with the government’s own competitive neutrality principles. Can you recall why you dropped those from the statement of expectations?
Mr BARNETT – The first thing to say to cover off your earlier question, and indeed this one, is that the Macquarie Point Development Corporation has to act within the law. There’s the Macquarie Point Development Corporation Act. In terms of borrowing – and I know you’ve asked the chair a number of questions about this – they must act in accordance with the legislation. Set out in the legislation is that the corporation must not borrow or otherwise obtain financial accommodation from another person under subsection (1) without the written approval of the Treasurer. That is set out in the legislation and it’s specific. It’s not in the GBE Act. I’m clarifying for the record.
Mr BAYLEY – That doesn’t explain why you would write out the expectation that it only carries out commercial activities that are appropriately costed and carefully managed, though. Do you recall why you did that?
Mr BARNETT – There are certain assumptions you’re making about what’s in the mind of the relevant minister.
Mr BAYLEY – I’m asking, I’m not assuming.
Mr BARNETT – I’m responding as the Treasurer.
CHAIR – Mr Bayley, I’ve given you a fair bit of latitude, but you’re now asking the Treasurer to reflect on actions he took as a minister in a previous portfolio rather than asking questions about the Public Finance Corporation.
Mr BAYLEY – Can I ask, then, would you rule out directing TASCORP to lend to the Macquarie Point Development Corporation for the stadium project, should the board come to the conclusion that loan was not wise? Would you rule that out?
Mr BARNETT – Mr Bayley, we’re asking hypothetical questions. I have a lot of confidence in TASCORP and the people on my left, the chair, the board and the CEO. I’ve got to know them in the less than two months I’ve had in the role as Treasurer and I have confidence in them. I will take their advice and I will take advice from Treasury before I make any decision with respect to such an important matter that you refer to.
Mr BAYLEY – To be clear, I don’t lack confidence in them either. That’s why the question is directed at you about whether you would direct them to do something that’s contrary to their own advice and finding.
Mr FERRALL – Section 12 of the TASCORP Act limits the functions and powers of TASCORP and in performing and exercising its functions and powers in meeting its objectives under this or any other act, the corporation must have due regard to the appropriate levels of financial risk. We operate on the basis of our legislative framework. The hypothetical circumstance you have raised where the Treasurer directs potentially TASCORP would be limited by section 12 because the corporation must have due regard to appropriate levels of financial risk. There’s no out from that, there’s no exemption. From TASCORP’s perspective and TASCORP’s board’s perspective we would seek advice on the particular direction that may or may not have occurred and if the powers in our act limit us from complying with that so‑called direction, then we wouldn’t. We will follow the law and follow our legislative framework. It is purely a hypothetical circumstance.
Mr BAYLEY – That’s why the question is to the Treasurer as to whether the direction will be made. You’re saying that section of the act would preclude you from complying with that direction?
Mr FERRALL – It would appear so, but before we entertain even a hypothetical circumstance we’ve got to identify whether the circumstance can even occur which, in my view, it probably can’t. I would need SG advice on that to fully understand the likely ramifications.
Mr BAYLEY – Stranger things have happened. I asked the question because, yes, it’s a hypothetical, but on the evidence that’s in front of us in the public domain at the moment, it’s a likely and potential scenario that you are presented with an application for borrowings from a government entity that doesn’t stack up. It’s a likely situation. We can leave it there. Happy to move on, Chair.
Mr BAYLEY – Government businesses – Forestry Tasmania, trading as Sustainable Timber Tasmania, Tasracing – have got access to debt facilities with TASCORP. Have they got any borrowings at the moment, as it stands?
Mr FERRALL – Sustainable Timber, as of 29 November, didn’t. Was it Tasracing?
Mr BAYLEY – Tasracing.
Mr FERRALL – Tasracing has a facility limit of 18.7 and it had an exposure of 4.5, as at that the same date.
Mr BAYLEY – $4.5 million? Have either of those two GBEs recently approached TASCORP for additional funding or additional loans?
Mr FERRALL – No formal request, no. Nothing.
Mr BAYLEY – In your annual report, it details that 89.5 per cent of total advances are guaranteed by the state. That’s down from 96.5 last year.
CHAIR – The time being 3.00 p.m., the time for scrutiny has expired. I thank those in attendance.
