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Credit quality of NZ debt market peaking in 2005

Credit quality of NZ debt market peaking in 2005

8 April 2005 - Brisbane-based credit ratings agency, Rapid Ratings, has released its bi-annual review of the New Zealand Debt market (NZDX), which reveals a stronger, healthier, debt market, with opportunities for investors to make good returns at low risk, but with credit quality now likely at its peak in 2005.

Overall, the risk profile of the county’s debt issuers improved since the last report issued in October 2004. Out of the 25 debt issuers rated by Rapid Ratings, fifteen companies (60%) achieved investment grade status – B3 (65) - or higher, compared with 14 companies in October 2004, while just 4 (compared with 8) were rated as borderline investment grade and six (compared with 10) rated sub-investment grade. Companies rated investment grade have a low or moderate risk of default, while their assets are considered of generally good quality

In another encouraging sign, more companies had positive outlooks for 2005 (15 compared with 13 in 2004) signalling that their ratings will improve this year. Just three companies had negative outlooks. See graphs 1 and 2 below for a comparison of the two reports:

Well-known names dominate the Top 5 rated companies, which included pay-television group Sky TV Network (also rated the top company on the NZ Top 50), Telecom NZ, Auckland International Airport and entertainment company, Sky City. (See Table 1 below)

Rapid Ratings risk return analysis of the market revealed once again that there are a significant number of debt securities that are offering high returns at low to moderate risk with as many as 15 out of the 53 debt securities falling into this category. However, investors should note that many medium to high-risk debt securities are offering inadequate returns, so care should be taken when investing in the market.

‘While much focus is still on equity stocks today, those investing in New Zealand capital markets should take a closer look at the debt market where there are good long-term opportunities for matching lower to moderate risk with good returns,’ said Dr Patrick Caragata, managing director and CEO of Rapid Ratings.

‘In line with the strengthening NZ Top 50, the NZDX has also strengthened another good sign for the country’s capital markets, he added.

Rapid Ratings’ System

At the heart of Rapid Ratings’ software-driven research are 25 industry-specific quantitative financial models that generate credit risk ratings for approximately 15,000 global companies. Rapid Ratings utilizes publicly available corporate financial data as inputs to generate a risk rating. Each industry model employs 62 financial ratios and a sophisticated multivariate econometric global benchmarking system. The models include a database of over 250,000 companies that reference 25-30 years of financial data.

Rapid Ratings’ Background

Rapid Ratings provides corporate financial health research on both listed and unlisted companies in the US, Canada, Singapore, Australia and New Zealand for investment funds, brokers, banks, large creditors, financial planner networks, financial advisors, accounting firms and retail investors. Rapid Ratings is the only qualified Australasian research firm to provide equity recommendation reports to some top research firms on Wall Street such as Lehman Brothers and Bank of New York Jaywalk, through the global settlement selection. Rapid Ratings’ research is now available on Bloomberg and will shortly be seen on several global networks.

Rapid Ratings is 76% owned by Collection House Limited, an Australian company that is listed on the ASX. Rapid Ratings has offices in New York, Toronto, Singapore, Sydney, Brisbane and Wellington.

Rapid Ratings Pty Ltd

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