Herald: Has this sparked an appetite from other developers to look at accessing special purpose vehicles in greenfield areas?
Walker: Developers in the North West and in the South are more engaged. The conversations are more real and more practical. It's not just a talkfest. Milldale has paved the way. Firstly, it's a signal to the market that if you can syndicate, we can work with you.
Secondly, Treasury has earnestly engaged with the project financing model.
Herald: How big do you expect this new funding line to grow?
Walker: I wouldn't be surprised if SPV issuance in three to five years both in Auckland and one or two other high growth metropolitan areas in New Zealand wasn't in the $3 billion to $4.5b mark.
Herald:That will be exciting for capital markets.
Walker: Yes, all these pressures and opportunities are coming now, because Auckland in particular, is faced with a step change around the pace and standard of our infrastructure — particularly for transport.
The time-honoured funding mechanisms, which are a mixture of council rates and NZTA (pay as you go) are under pressure. So we are faced with two challenges: Can we refashion the institutional arrangements to solve the balance sheet constraint? And I think the answer there seems to be 'Yes, we can' and our credit rating agencies are looking at that constructively.
The other question, because someone still has to pay — is, can we set charges in the community in a way that will be politically acceptable?
There's no black box with SPVs. You're raising the money and setting the charges for contractually agreed programmes.
Herald: Let's look at green bonds which seem to be a popular topic with the capital markets. Is this something you are actively growing?
Walker: I came out of that industry and I was in a panel discussion in Australia earlier this year and I just had a moment where I said to myself, five or ten years ago we simply would not have had a gathering of fund managers having that conversation.
What has happened is the investment side want to feel like they are involved in sponsoring and investing in projects that have a green or climate change response.
Herald: How keen is the appetite for green bonds?
Walker: There is enormous interest, both domestically and internationally, for green bonds. We've seen a tenfold increase in the past four years. The vast majority of infrastructure we put in place — particularly with public transport where we are replacing car trips — immediately goes to carbon reduction.
Herald: How is that working in practice?
Walker: We've issued the first Council Issued Green Bond in NZ of $200m and under a certification programme we have committed to wrap all of the proceeds into our electric train unit acquisition programme. We're giving investors added confidence and comfort so they know exactly where their money's going. And then you have a certification wrapper that requires us to undertake a few tests to ensure that is where the money's going and that indeed electric trains are a legitimate carbon reducing asset.
In the water space, in the transport space, and in the green building space, this organisation has an array of opportunities. So, we could issue a lot more green bonds. We are keen to do that and our elected members are really supportive of it too.
Herald: Who took the bonds up?
Walker: We issued in NZ dollars through the NZ market — the institutions, banks and fund managers were in. When the treasurer and I were in Australia the interest from Australian investors was just enormous.
Herald: The Government has been keen for ACC and the NZ Super Fund to invest in SPVs — how is their appetite?
Walker: ACC have an interesting liability profile that means they're predisposed to think very long-term so Milldale was a natural place to invest. NZ Super have long-term horizons and have more grunt. I think they have more ability to craft their own mandates.
They're less benchmark driven than KiwiSaver. They can get their head around taking a 3-4-5 year decade play on a light rail or housing project, because it is actually more equity-like.
If I give you an analogy: if we could find natural buyers for the rate of uptake of housing in a brownfield or a greenfield area then we could have a happy marriage, but a debt investor will stop and feel like that's a risky proposition. An equity investor will be more relaxed about it. Regardless, it's new and it takes a bit of time for people to get their heads around it.
Herald: Is this a prospect for KiwiSaver funds?
Walker: So, you get down to KiwiSaver, they're very benchmark driven, and they tend to have relatively conservative mandates.
