(The following statement was released by the rating agency) Fitch Ratings-Sydney-28 March 2021: Fitch Ratings has placed Westpac New Zealand Limited's (WNZL) Foreign- and Local-Currency Long-Term Issuer Default Ratings (IDR) of 'A+' and Support Rating of '1' on Rating Watch Negative following Westpac Banking Corporation's (WBC, A+/Negative) announcement to review its New Zealand business, which may consider a partial or full sale of WNZL. Australia-based WBC owns 100% of WNZL. The senior unsecured debt ratings of instruments issued by WNZL and Westpac Securities NZ Limited, a funding vehicle whose debt is guaranteed by WNZL, have also been placed on Rating Watch Negative. WNZL's Viability Rating of 'a' was not considered as part of this review.
WBC said on 24 March that it is considering the appropriate structure for its New Zealand business and assessing whether a demerger would be in the best interests of shareholders. The assessment is still in the early stages and a decision is yet to be made by WBC. We will resolve the Rating Watch Negative once WBC has decided whether to proceed with the demerger. Key Rating Drivers IDRS, SUPPORT RATING AND SENIOR DEBT
WNZL's IDRs and Support Rating reflect Fitch's expectation of an extremely high likelihood of support from WBC, if required. The Rating Watch Negative indicates that a decision to divest WNZL would mean the business is no longer considered a core part of the group, potentially reducing the reputational risk of a WNZL default for the parent. It may also weaken the strong system and management integration between WBC and WNZL.
The Rating Watch Negative will be resolved upon the resolution of WBC's review on demerging WNZL, although any subsequent potential sale may not be completed before end-2021.
WNZL's senior unsecured rating is aligned with its Long-Term IDR as per Fitch's rating criteria.
SUBSIDIARY AND AFFILIATED COMPANIES
WNZL issues part of its wholesale funding through its wholly owned funding subsidiary, Westpac Securities NZ. Fitch does not rate Westpac Securities NZ, only the senior unsecured debt that it issues. The debt ratings are aligned with those of WNZL, as the parent guarantees the debt instruments. RATING SENSITIVITIES IDRS, SUPPORT RATING AND SENIOR DEBT
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
WNZL's Long-Term IDRs and senior unsecured ratings could be downgraded if WBC decides to proceed with the divestment of WNZL. This would indicate a lower propensity to support the New Zealand subsidiary relative to our current view of institutional support. It would also weaken WNZL's role within the banking group. We could lower WNZL's Support Rating in this case. Any downgrade of the Long-Term IDRs and senior unsecured debt ratings would be limited to one notch unless WNZL's Viability Rating of 'a' is also downgraded at the same time, which is not our base-case scenario. The Short-Term IDRs would only be downgraded if the Long-Term IDRs were downgraded to 'A-' or below.
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
We are likely to revert to equalising WNZL's IDRs, including the Outlooks, with those of its parent if WBC decides to retain its New Zealand operations.
SUBSIDIARY AND AFFILIATED COMPANIES
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
The senior unsecured rating of instruments issued by Westpac Securities NZ would be downgraded if WNZL's IDRs are downgraded.
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