Why UTAS’ $350 million Green Bond debt matters

In my next post, I will argue that if UTAS’ proposed CBD move/Sandy Bay redevelopment goes ahead, it will lead to financial disaster with the State Government needing to provide a cash bail out, if UTAS is to survive.

As this disaster emerges, the creditors for UTAS’ $350 million Green Bond debt would be likely to seek early repayment of their loans to UTAS.

  • The evidence I have seen appears conclusive that UTAS does not have a valid borrowing approval from the State Government for its $350 million Green Bond debt, and this matter could well end up in court.

Not only would the State Government likely have to pay out the $350 million (with penalties), but its own credit rating could well be downgraded, with an increase in the cost of Tasmania’s future borrowings, due to the reckless attitude it has demonstrated in regard to Tasmania’s finances, as evidenced in part by its own continued mishandling of the Green Bond issue.

  • Payout of the debt would, of course, ultimately fall on the taxpayer.

  • The longer the State Government allows UTAS to go without a valid borrowing approval, the greater the legal risk to Tasmania, and the greater the Government’s recklessness.

  • The other part of the State Government’s recklessness is its unquestioning acceptance of UTAS’ proposed relocation plans, with the Government not undertaking any independent analysis of UTAS’ business case.

In this post I consolidate key material from previous posts and provide new material, demonstrating that UTAS paid little, if any, attention to ensuring that it had a valid borrowing approval for the Green Bond (see Appendix 1 at the end of this post for details of my previous posts on the Green Bond).

If UTAS and/or the Government believe UTAS had a valid borrowing approval for the Green Bond, they should immediately make that approval (or approvals) public.

  • They will, however, need to explain why such an approval was not made available to me under RTI and its existence not even hinted at through RTI processes.

In the absence of records showing that UTAS’ Green Bond debt was fully supported by Government approvals, I believe that VC Black should either resign or be dismissed as VC of UTAS.

  • He was the UTAS officer with lead responsibility for the flawed Green Bond process, exposing all Tasmanians to financial risk (see, for example, UTAS Council Minutes for 23 February 2022, page 258 of pdf) ; and

The role of former Treasurer (and Premier) Gutwein and the Department of Treasury and Finance (Treasury) in this situation should also be investigated.

As matters stand, I believe UTAS and the Government should immediately act to ensure that the Government approves a borrowing approval that fully supports UTAS’ $350 million Green Bond debt and its $50 million working capital facility.

I will be providing a copy of this blog post to relevant State and Commonwealth Ministers as well as media outlets.

In this post I have not revisited concerns I have previously raised in relation to the accuracy of comments made by Moody’s in its credit ratings of UTAS. I am separately considering how best to pursue these concerns.

All material on UTAS’ Green Bond referenced in this post was either provided to me by the Department of Treasury and Finance (Treasury), in response to a Right to Information (RTI) application or is otherwise in the public domain.

  • I have arranged records obtained from Treasury under RTI chronologically here. Throughout this post I reference individual records using the format: RTI Record number and date, so they can be easily identified.

Central Players in the Green Bond mess – VC Rufus Black and Treasurer (and Premier) Peter Gutwein

Background

Section 7(2) of the University of Tasmania Act 1992 states: “…the University is not to exercise its power to borrow money unless it has first obtained the written approval of the Treasurer.”

At 30 December 2020, UTAS held a borrowing approval(s) from the Treasurer that provided for a borrowing facility with State-owned Tascorp for $200 million, comprising:

  • a loan facility for $125 million – this had a maturity (payout) date to Tascorp of June 2023.

  • an overnight working capital (overdraft) facility for $75 million. (For details of the Tascorp facility see, for example, RTI Records 7 and 4 of 1 and 22 July 2021 respectively and; and UTAS’ Annual Report for 2021, pages 78-79).

In response to a request from UTAS, on 3 March 2021, then Treasurer (and Premier) Gutwein provided a conditional approval to UTAS for an additional borrowing facility of $200 million in the letter below.

The language of the Treasurer’s approval was clearly predicated on UTAS borrowing the additional $200 million from Tascorp.

  • For example, the first sentence includes “…for a $200 million increase in the University’s borrowing facility limit.”

However, following a breakdown in negotiations with Tascorp during 2021, UTAS decided not only to borrow the additional $200 million from the market, but also to refinance its current $200 million Tascorp borrowing from the market (RTI Record Record 9, 27 October 2021)

  • For more detail of the breakdown of negotiations between UTAS and Tascorp see the section titled UTAS and Tascorp in my post Green Bombshell – RTI papers reveal UTAS broke own law. In short, UTAS was uncomfortable with Tascorp seeking to impose standard terms on UTAS to protect the State’s interests.

On 15 March 2022, UTAS issued the so-called Green Bond on the debt market, raising $350 million:

  • $280 million having a maturity date of 24 March 2032 (10 years) – annual interest rate payable by UTAS 3.97%.

  • $70 million having a maturity date of 24 March 2042 (20 years) – annual interest rate payable by UTAS 4.45%.

UTAS also replaced its $75 million overdraft facility with Tascorp with a short term borrowing facility with either NAB or the Commonwealth Bank – presumably for $50 million (sources: Green Bombshell – RTI papers reveal UTAS broke own law and Kanga News, 18 March 2022).

UTAS did not have a valid borrowing approval for the $350 million Green Bond

VC Black’s evidence to the LegCo Inquiry

In the LegCo Inquiry on 4 May 2023, Meg Webb MLC questioned VC Black about whether UTAS’s $350 million Green Bond was of such a kind as to warrant Government borrowing approval. VC Black replied:

“Green bond is borrowing, and our ability to do that was based on 3 March 2021, then Treasurer Peter Gutwein issued a letter to the university granting approval for a $200 million increase in our borrowing limits subject to the [three conditions set by Treasurer Gutwein]….We met all three of those conditions.” [my bolding]

  • VC Black’s clearly suggest that UTAS’ entire $350 Green Bond borrowing rested on Treasurer Gutwein’s letter of 3 March 2021.

  • He was provided with a perfect opportunity to refer to any other Government borrowing approvals that could be held to support the Green Bond. He did not do so.

Treasurer Gutwein’s letter was not a valid borrowing approval for the $350 million Green Bond debt raising

Crucially the third dot point of Treasurer Gutwein’s letter makes UTAS borrowing of an additional $200 million subject to the condition that:

“the $200 million borrowing facility limit will reduce over time consistent with the maturity profile detailed in the University’s request.“

  • the “request” is presumably a reference to documents provided by UTAS to Treasury on 16 December 2020 – these documents were not provided to me under RTI (RTI Records 1 and 8 of 23 October 2020 and 2 February 2021 respectively refer to the documents).

A conditional approval for a $200 million borrowing cannot possibly be held as valid for the Green Bond borrowing of $350 million, which has a maturity profile of $280 million maturing in 2032 and $70 million maturing in 2042.

Even if the maturity profile provided by UTAS to Treasury (the basis for the condition in Treasurer Gutwein’s letter) coincided with $200 million of the Green Bond maturity profile, on the evidence of documents provided to me under RTI and VC Black’s testimony to the LegCo, $150 million of UTAS’ Green Bond borrowing is currently unsupported by an appropriate borrowing approval from the Treasurer.

  • The documents provided to me under RTI refer to only one other borrowing approval issued by the Government to UTAS – “…the short term borrowing approval [Treasurer Gutwein] provided under section 7(2) of the Act in June 2019” (RTI Record 5, 4 October 2019]).

  • As noted previously $125 million of UTAS’ borrowing from Tascorp had a maturity date of 2023 while $25 million of UTAS’ $75 million overdraft facility with Tascorp, was effectively incorporated in the Green Bond arrangement, which had maturity dates in 2032 and 2042.

It is quite possible that Treasurer Gutwein’s conditional borrowing approval does not even support $200 million of the $350 million Green Bond debt

In fact, it seems quite possible that less than $200 million of the $350 million Green Bond debt is supported by a valid borrowing approval, as the public record shows UTAS acting with seeming disregard or negligence of the maturity profile that it had provided to Treasury for the additional borrowing of $200 million.

For example, in the weeks leading up to, and including, the launch of UTAS’ Green Bond on 15 March 2022, UTAS was open to different volumes and different maturity dates for Green Bond tranches, depending on demand, for example:

  • In an article on 21 February 2022, Kanga News, a specialist journal for bond investors, stated that UTAS had “announced plans for an Australian dollar denominated fixed-rate green bond on 21 February. The transaction is expected to be offered with a 10- or 12-year tenor [maturity, expiry in this context], but the issuer says it is open to taking indications of interest at a longer maturity date.” [my bolding]

  • On 24 February 2022, Moody’s rating agency “assigned a provisional (P)Aa2 rating to the University of Tasmania’s (UTAS) forthcoming AUD senior unsecured medium-term notes (MTN) programme.“ [my bolding]
    • A search of the internet suggests that medium-term notes are generally defined as up to 10-years, although a 12-year note could conceivably fall within the term. I found no source indicating that 20-year notes could be considered medium-term.

  • In an article on 15 March 2022, Kanga News referred to UTAS launching a dual tranche Green Bond with indicative volumes for 10- and 20-year tranches being respectively $100 million and $50 million.

  • On 18 March 2022, after completion of the Green Bond raising, The Australian recorded UTAS’ then Chief Operating Officer, David Clerk as saying: ‘We had a target of $200m in this first tranche of green bonds, with plans for a second tranche to raise a further $150m,…By midafternoon, we had raised the full $350m.”

“The issuer elected to delay execution by a week due to the start of the Ukrainian conflict but the solid investor interest in both tenors – particularly once markets calmed – opened an issuance window. ‘We were looking for offshore money to secure the longer-dated paper,’ Clerk explains.“

It is not unusual for commercial organisations to respond to market demand by issuing bonds in greater volumes and by varying maturity dates. However, UTAS is a not a commercial organisation and the flexibility it displayed throughout the Green Bond process does not readily accord with the picture of an organisation bound to operate within the terms of State Government borrowing approvals.

Did UTAS breach a second of Treasurer Gutwein’s three borrowing conditions?

The second dot point of Treasurer Gutwein’s letter makes UTAS’ borrowing of an additional $200 million subject to the condition that:

“the increase of $200 million to the existing borrowing facility limit is approved solely for the purposes of the Southern Infrastructure Project“

I have not been able to locate a precise definition of “Southern Infrastructure Project” (SIP), but note the following by McBride Charles Ryan:

“The UTas Southern Infrastructure Strategic Master Plan is a culmination of the combined efforts of The University of Tasmania (UTas), North Projects, PricewaterhouseCoopers (PwC) and McBride Charles Ryan (MCR) over a two-year period initial work involved the creation of an Academic Vision and Framework Report to guide the future strategy of UTas’ Southern infrastructure….This process resulted in the endorsement of an evolutionary proposal to relocate the University from its dated Sandy Bay [sic] to Hobart CBD.” [my bolding]

A presentation on UTAS’ website on the IMAS facility at Taroona (slide 19) states that “The new lab building will be financed in part by a Green Bond.”

  • Taroona is in Greater Hobart, but it is not part of the Central Hobart Council area and it is certainly not part of the Hobart CBD.

There is, then, an open question as to whether funds limited to application to the SIP have been misapplied to works in Taroona.

There is also a question as to whether Green Bond funds are being fully applied in a manner consistent with undertakings to Green Bond investors.

For example, Moody’s stated in its issuer credit rating of 24 February 2022:

“The university expects to use the programme to partially fund the Southern Campus Transformation (SCT) development in the Hobart central business district.“

In its story of 22 March 2022, Kanga News stated:

“The notes adhere to International Capital Market Association Green Bond Principles, with proceeds aimed at construction of the university’s new Hobart campus.” [my bolding]

Documents providing a definition of the SIP and the prospectus issued to Green Bond investors should be publicly released.

Language matters

As stated previously, the language of the conditional approval also seems to have been predicated on UTAS borrowing the additional $200 million from Tascorp. Treasurer Gutwein refers to a “borrowing facility” four times and a “funding facility” once in his conditional approval letter of 3 March 2021.

This language is appropriate for the type of arrangement UTAS might have had with Tascorp, but it is entirely inappropriate for the Green Bond, which is not a borrowing facility. A loan from Tascorp is a facility but in market usage, a debt capital raise is not. 

This is an issue that could be raised in court.

Commonwealth in the frame

Consistent with its 10 December 2021 and 24 February 2022 ratings of UTAS, in its September 2022 review of UTAS’ credit rating, Moody’s variously stated:

“[UTAS has a] Strong institutional framework and funding support.” (page 1)

“University of Tasmania’s ratings combine: (1) a baseline credit assessment (‘BCA’) of a1, and (2) a high likelihood of extraordinary support from the Commonwealth in the event of acute liquidity stress.” (page 2; my bolding)

“We could downgrade the ratings if we believe there is a reduced likelihood of extraordinary financial support from the Commonwealth or if the creditworthiness of the Australian sovereign weakens.” (page 2; my bolding)

“….This augmented the mature institutional framework and aligns to our expectations of a high level of extraordinary support from the Commonwealth that will assist buffering the sector from shocks.” (page 3; my bolding)

In other words, Moody’s assumed and continues to assume that UTAS’ borrowings are backed by an implicit guarantee from the Commonwealth, not the Tasmanian Government.

I do not believe for a moment that the Commonwealth would accept responsibility for debt approved by the Tasmanian Government, let alone debt that under law should have been subject to formal State approval processes, but was not. If UTAS were to run into financial difficulties pursuing a move to the CBD, Tasmania would bear the cost. However, fallout with the Commonwealth could still be expected, if it had not been kept fully in the loop.

Fix the problem

I do not believe anyone in a responsible position in Tasmania could now claim not to know that there is a problem with the legal underpinning of UTAS’ Green Bond debt.

Among others I have contacted on this issue, I emailed VC Black on 6 April 2023 and on the video recording of his evidence to the LegCo Inquiry on 4 May 2023 it is clear that he was working from a brief, seemingly prepared to address the issue (see video, from one hour 57 minutes in).

If previously, people could say they did not know that the Green Bond may not be supported by a valid Government approval, they should certainly know now. There is a point at which UTAS’ failure to obtain a necessary and prudent borrowing approval from the State Government changes from plausibly being a ‘stuff-up’ to being a ‘cover-up’ on the part of both parties

For the sake of Tasmania, UTAS and the State Government should ‘eat some humble pie’, accept that UTAS does not have a satisfactory Government approval for the $350 million Green Bond debt, and move to rectify this issue by ensuring a Government approval precisely tailored to the Green Bond (and UTAS’ short-term borrowing facility of $50 million) is immediately put in place.

The Green Bond mess demands accountability

As I have stated in a previous blog post, the fact that UTAS Council Minutes indicate that no-one on the Council gave thought to their legal obligations to ensure a valid approval from the Treasurer was in place when authorising the Green Bond programme (together with the new corporate debt facility) is a damning indictment of that body.

  • If there is one thing that UTAS Council members should be concerned about, above all else, it is their compliance with the law.

  • In particular, Council members could reasonably have been expected to know UTAS’ legal obligations under the UTAS Act and to have sought assurance from Management that those legal obligations had been met.

  • I suggest UTAS Council members who failed to ensure that UTAS was meeting its most fundamental legal obligations with respect to the Green Bond should carefully consider their position on the Council. This applies doubly to any UTAS Council member who was sitting on the responsible UTAS committee advising Council at the time – probably the Finance Committee.

UTAS Management, including VC Black who took a lead role in this matter, also appear as either grossly incompetent and/or all too ready to put themselves above the law.

VC Black’s failings in this matter have been compounded by his performance in the LegCo Inquiry on 4 May 2023, in which he indicated that UTAS $350 million Green Bond borrowing was fully supported by Treasurer Gutwein’s conditional approval of 3 March 2021 for $200m.

There can be only four reasons for this:

  • VC Black was trying to bluff his way through the LegCo Inquiry in relation to the validity of UTAS’ borrowing approval.

  • Notwithstanding his role in the Green Bond process, VC Black did not know what he was talking about.

  • VC Black was poorly briefed.

  • Some combination of the preceding factors.

As I have noted previously, VC Black also made a number of other errors in his evidence to the LegCo Inquiry on debt issues. These errors were themselves compounded by VC Black’s overly-confident and high-handed manner (see Video, at 1 hour 57 minutes in).

VC Black should immediately apologise to the LegCo and correct the record (failure to do so could represent contempt).

VC Black should then resign or be removed by the UTAS Council.

  • I will have further comment to make on VC Black’s failings as a CEO in forthcoming blog posts.

The State Government also appears as completely derelict.

If it was aware that UTAS was about to break the law in issuing the Green Bond, the Government should have taken action to remind UTAS of its legal obligations prior to the Bond issue and advise it to seek the requisite approval under the UTAS Act.

If it was taken unaware (and you would have to ask how this could be so), it should have rebuked UTAS for seemingly borrowing without adequate approval and ensured a valid borrowing approval was put in place for UTAS’ debt as soon as possible.

Treasurer Gutwein’s and Treasury’s roles in this matter should be investigated.

Is UTAS’ Green Bond really green?

The issue of whether the Green Bond is really green is a subject I have commented on a number of times, particularly under question 4 of my post UTAS lacks any credibility on CBD move of 16 January 2016. I will return to the subject again in my next post, so I will keep my comments here brief.

In short, I believe that any carbon emission benefits claimed by UTAS for its proposed relocation to the Hobart CBD/redevelopment of the Sandy Bay site as a new suburb, would be massively outweighed by the costs, as would be any other environmental benefits claimed by UTAS.

UTAS has made great play of the contribution its proposed CBD move will make to reductions in carbon emissions arguing by extension that the Green Bond, as an investment mechanism supporting the move, will contribute to sustainability.

In fact, even in its own terms, the environmental gains UTAS spruiks are limited.

In a media release of 23 February 2022, UTAS stated:

“The Green Bond Framework commits the University to a minimum target reduction of 20% in the upfront carbon emissions embedded in construction of new campus buildings.“

As stated in Kanga News on 4 May 2022:

“The transaction structure encourages the reduction of carbon emissions over the building’s lifetime by the use of construction materials, techniques and design. This contrasts with operational carbon generated through everyday activities, such as energy use. UTAS targeted embedded carbon as its operational carbon footprint is already low thanks to Tasmania’s hydro-generated electricity market.” [my bolding]

My next blog post will look at the vast building (demolition, construction, renovation and refurbishment) programme UTAS is envisaging in its proposed relocation to the Hobart CBD and redevelopment of its current Sandy Bay site as a new suburb. I believe people will be shocked by the scale of this proposed building programme.

UTAS’ Green Bond really just appears to be a mechanism for canny investors to “greenwash” their activities.

In considering whether the Green Bond is really green, questions such as these on carbon and other emissions/pollution should be considered:

  • What would be the level of carbon emissions and other pollution produced in further building work in the Hobart CBD, including additional traffic involved in that work?

  • What would be the level of carbon emissions and other pollution produced by the destruction of the Sandy Bay campus site and the development of a new suburb within such confined spaces, including additional traffic involved in the work, and any requirement to transport equipment into Tasmania?

  • What would be the level of carbon emissions and other pollution produced by the inevitable gridlock (idling) and traffic delays that UTAS’ proposed CBD move would bring to the Hobart CBD, Churchill Avenue and Sandy Bay Road, which are all heavily congested at peak hours now.

  • What would be the level of noxious gases and other substances released by the relocation of UTAS’ Sandy Bay to the Hobart CBD?

  • What would be the cost of refurbishing buildings on the Sandy Bay site to achieve comparable carbon emission benefits to those envisaged for buildings in the CBD, which UTAS currently proposes to refurbish?

In asking these questions, I note that the Climate Change Office’s recently released Tasmanian Greenhouse Gas Emissions Report 2023 makes clear building and transport activity are carbon intense.

On more general environmental (but still green!) issues, these sorts of questions should be considered:

  • What impact does UTAS anticipate having on green spaces and native habitat in redeveloping the Sandy Bay campus site?

  • What impact does UTAS anticipate from the loss of green spaces on the health and well-being of students and staff?

  • A number of the buildings on UTAS’ campus site have clear heritage values. What will UTAS do to preserve such buildings?

Appendices

Appendix 1 – Previous posts on the Green Bond and related issues

My previous posts on UTAS’ Green Bond are:

Appendix 2 – VC Black’s testimony to the LegCo Inquiry on the Green Bond

VC Black giving error -ridden and misleading evidence to the LegCo Inquiry on 4 May 2023

(For the following, see Transcript, pages 27-28; Video, start at 1 hour 57 minutes)

“Ms WEBB – I am interested in the borrowing-like activities that UTAS has engaged in, specifically around the student accommodation arrangement with Spark Living and then also separately the issuing of the green bonds. Both those activities could be regarded as borrowing like activities, if not technically you are going to borrow, but in effect they have the same result for the organisation. Did either of those require under section 7(2) of the act, the approval of the Treasurer?

Prof BLACK – Green bond is borrowing, and our ability to do that was based on 3 March 2021, then Treasurer Peter Gutwein issued a letter to the university granting approval for a $200 million increase in our borrowing limits subject to the following conditions:

(1) Obtaining and maintaining an investment grade credit rating.
(2) The increase is approved solely for the purpose of the construction of the southern infrastructure project.
(3) The $200 million borrowing facility limit will be reduced over time consistent with the maturity profile requested by the university.

We met all three of those conditions. We have a public credit rating of [Aa2], and we got that on 14 December 2021. The additional borrowing is being used for solely for the purpose of southern infrastructure. That’s the green bond, and the borrowing facility term that we’ve got through the green bond is appropriate to align with the long-term nature of the project as per our request. So, it’s all occurred in a very carefully sequenced set of steps consistent with the formal letter of approval from the Treasurer. [my bolding of text]

Ms WEBB – So, the extent to which that sort of borrowing activity or, indeed, the Spark arrangement which is effectively a borrowing activity too, to provide you with a capital amount that you can use in the short-term – how do they compare to the option that UTAS would have had to borrow from TasCorp, for example? Is UTAS in a better financial position to undertake those sorts of borrowing activities as opposed to what conditions would have been under from TasCorp

Prof BLACK – Yes, significantly. We went through an extensive process with TasCorp to see if they were the appropriate entity for making those borrowings. The green bond was a much better facility for the university to be able to pursue its objectives.

By : Robert Hogan