QTC Half Yearly Report July-December 2013

Vision

Securing Queensland’s financial success

Mission

To deliver optimal financial outcomes through sound funding and financial risk management

Values

We are focused on our clients
We are passionate about Queensland
We value and respect our people
We are collaborative and seek continuous improvement
Above all else, we value integrity

As the Queensland Government’s central financing authority, Queensland Treasury Corporation (QTC) plays a pivotal role in securing the State’s financial success.

QTC provides a range of financial services to the State and its public sector entities, including local governments. These services include debt funding and management, short- to medium-term cash management facilities, financial risk management advisory, and specialist public finance training.

Debt funding and management

QTC borrows funds in the domestic and global markets in the most cost-effective manner and in a way that minimises liquidity risk and refinancing risk. QTC achieves significant economies of scale and scope by issuing, managing and administering the State’s debt funding.

QTC works closely with Queensland’s public sector entities, including local governments, to assist them to most effectively manage their financial transactions, minimise their financial risk and achieve the best financial solutions for their organisation and the State.

Short- to medium-term cash management facilities

QTC assists the State’s public sector entities to make the best use of their short- to medium-term cash balances within a conservative risk management framework. It offers overnight and fixed-term facilities and a managed short-term fund.

Financial risk management advisory

QTC offers a range of financial risk management advisory services to clients, including:

• support to ensure financial risks are identified and effectively managed
• advice on financial and commercial considerations
• expertise in financial transactions and structures
• project management support to deliver key fiscal outcomes, and
• collaboration with the financial markets and private sector institutions.

Specialist public finance training

QTC offers a range of training courses that complement its products and advisory services and allow it to share its specialist financial, commercial, treasury management and risk management expertise with clients. Courses are developed and delivered by QTC’s experienced professionals and industry experts.

Borrowing program

In response to the State Government’s Mid-Year Fiscal and Economic Review, QTC released its mid-year update of its 2013-14 borrowing program on 19 December 2013. In this update, QTC’s borrowing task was reduced by $1 billion, as a result of better operating performance in the General Government sector, lower borrowing requirements across Government, and use of surplus liquidity.

The revised $11.1 billion borrowing program for 2013-14 consists of $6.1 billion of term debt, $3 billion of which had been raised by the end of the calendar year via:

• a syndicated $1.2 billion 2016 floating-rate note issue in September, which was QTC’s first issue of a floating-rate note since 2011
• a syndicated tap of its existing 2019 benchmark bond line, raising $1.1 billion and bringing this line to $4 billion, and
• an additional $500 million of its 2016 floating rate note via syndication in October.

In the period under review, QTC’s bond spreads contracted to those of the other Australian semi-government and Commonwealth issuers.

AUD benchmark bonds will remain QTC’s principal source of funding with other instruments, including floating rate notes, considered subject to funding requirements and investor preference. QTC also plans to maintain approximately $5 billion of short-term debt under its
commercial paper and treasury-note programs.

Credit rating

In November, Standard & Poor’s affirmed Queensland and QTC’s credit rating at AA+/A-1+ with the outlook remaining stable, citing Australia’s strong institutional framework, together with Queensland’s strengthening economy, positive financial management and strong liquidity.

Whole-of-State benefits

QTC’s capital markets activities, together with its ability to leverage economies of scale, have delivered an estimated $162 million worth of benefits for clients in the six months to 31 December 2013. On the financial advisory side of its business, QTC is working with the State to deliver its wider fiscal priorities and support the Public Sector Commission’s implementation of the Commission of Audit recommendations.

Operating profit

For the half-year ended 31 December 2013, Queensland Treasury Corporation (QTC) achieved an operating profit from its capital markets operations of $97.9 million (HY2012: $225.4 million). In addition to these capital markets activities, QTC’s long-term assets operations recorded a $446.0 million profit (HY2012: $1,154.5 million)*.

G P Bradley
Chairman P C Noble
Chief Executive

* Under an administrative arrangement, QTC on behalf of the State receives returns from investments held to meet the State’s long-term obligations, primarily superannuation, which are managed by QIC Limited. In return, QTC has issued to the State fixed-rate notes that provide a stable return. While QTC bears the fluctuations in the value of and returns on the long-term asset portfolio, there is no cash flow effect; any losses incurred would have no impact on QTC’s capital markets activities or its ability to meet its obligations.