• For background, refer to my previous post on the Green Bond, which featured documents from the Department of Treasury and Finance (Treasury) provided in response to a Right to Information (RTI) application. That post included a detailed chronology and analysis of issues.

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

  • At the end of this post, I have provided examples of questions that could be asked of UTAS and the Tasmanian Government and/or its agencies.

In his evidence to a hearing of the Legislative Council Select Committee Inquiry into the Provisions of the University of Tasmania Act 1992 (LegCo) on 4 May 2023, Vice Chancellor (VC) Black made a series of errors and dubious claims relating to UTAS’ Green bond and UTAS’ borrowings more generally.

This evidence can be reviewed in the transcript (pages 26-32) and the video recording (1 hour 57 minutes in) of the hearing.

Absence of a borrowing approval for the $350 million Green Bond

Confirming my previous Green Bond post, VC Black stated to the LegCo that UTAS had relied on a conditional borrowing approval of 3 March 2021 from then Treasurer (and Premier) Gutwein when it borrowed $350 million through its Green Bond programme in March 2022.

This is Mr Gutwein’s conditional approval:

The conditional approval was not valid for the Green Bond

VC Black claimed that the three conditions of the approval had been met with respect to the Green Bond (transcript, pages 27-28). THIS IS WRONG.

Treasurer Gutwein’s conditional approval was to increase UTAS’ “borrowing facility limit” to $400 million from the $200 million borrowing facility limit UTAS had at the time with Tascorp, and the working premise behind the Treasurer’s approval was that UTAS would hold the entire $400 million borrowing facility with Tascorp.

In the event, UTAS was unable to agree terms with Tascorp and UTAS decided to refinance all it of its borrowings at the same time as it went to the market with the Green Bond.

Thus, in March 2022, UTAS moved from having a $200 million borrowing facility with Tascorp to borrowing $350 million from the market through the Green Bond and establishing a short-term borrowing facility with either the Commonwealth Bank or NAB (presumably for $50 million).

The third dot point condition of Mr Gutwein’s letter was not met, as there is no way a maturity profile for $200 million could be construed to apply to a $350 million Green Bond debt.

  • Of UTAS’ $350 million Green Bond debt, $280 million matures in 10 years (2032) and $70 million in 20 years (2042). This simply cannot match a maturity profile for $350 million. The final maturity date is also different from the final maturity date of 2046 originally contemplated by UTAS (see entry for 1 July 2021 in the Chronology in my previous Green Bond post).

  • The maturity profile for the $200 million UTAS provided to Treasury (by February 2021) may well raise other issues, but this was exempted from the documents provided to me in response to my RTI application.

Moreover. the language of the conditional approval seems clearly predicated on UTAS borrowing the additional $200 million from Tascorp as Mr Gutwein refers repeatedly to a “borrowing facility limit”, including crucially when he says:

“I approve the request to increase the University’s borrowing facility limit [subject to the conditions that then follow]”

and then in the third dot point condition:

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

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 such as the Green Bond is not a “facility”. 

UTAS’ reliance on Mr Gutwein’s conditional approval for the Green Bond issue places UTAS (and the Tasmanian Government) in severe legal risk, if UTAS’ reliance on that approval ever comes to court, as it may well do given the financial risks associated with UTAS’ proposed Hobart CBD move.

On the kindest interpretation, UTAS and the State Government were both ‘asleep at the wheel’ as UTAS geared up for the issuing of the Green Bond from December 2022 – March 2023. (See the detailed chronology in my previous Green Bond post).

In my RTI application of 22 November 2022 to Treasury, among other things, I specifically requested:

“Any records held within the Treasury and Finance portfolio of any Tasmanian Government involvement with UTAS’ issue of a Green Bond in February 2022 [when the issue process commenced].

However, no records referring to the “Green Bond” were provided to me.

  • The last correspondence between the State Government (the Treasurer) and UTAS over UTAS’ borrowing provided to me under RTI was dated 8 June 2021.

  • The last brief to the Treasurer in relation to UTAS borrowings provided to me under RTI was on 27 October 2021.

  • The records provided to me by Treasury, which should extend up to 22 November 2022, do not contain any reference to the Green Bond.

Even if UTAS did not inform Treasury about issue of the Green Bond, Treasury should have been alert to the Green Bond issue, as it was a public process.

Moreover, even if UTAS and the Tasmanian Government took the view that the 3 March 2021 conditional approval would hold for the Green Bond (a view that is unsound), there is nothing in the documents released under RTI that supports this.

Where are the Green Bond records?

The absence of records referring to the Green Bond in response to my RTI is bewildering, and it has to be asked whether some sort of cover up is now occurring.

  • The Tasmanian Auditor-General has declined to provide any information in response to an RTI application I submitted about the borrowing approval. While I appreciate that he seems to have good reasons for this, his response only clouds the situation.

  • I have lodged an application for internal review of my RTI application to Treasury and I intend to lodge a new application to cover the period from lodgement of my last application to date.

Remedies and accountability

It may be that UTAS and the Tasmanian Government are determined to ‘dig in’ on Treasurer’s Gutwein’s conditional approval of 3 March 2021 being valid for UTAS’ $350 million Green Bond issue of March 2022. However, for the avoidance of doubt, a new (unconditional) borrowing approval tailored precisely to the Green Bond (and UTAS’ short term debt facility) should be sought by UTAS.

For their own credibility and legal safety, UTAS and the Tasmanian Government should come clean and tidy this mess up so that UTAS has a borrowing approval that is beyond legal question.

UTAS’ failure to seek a borrowing approval tailored to its refinancing in March 2022 should be judged harshly. I hold to my view stated in my previous Green Bond post that:

  • 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 should have known UTAS’ legal obligations under the UTAS Act and to have sought assurance from Management that those legal obligations had been fully met when considering the Green Bond.

  • 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 the VC who took a lead role in refinancing UTAS’ debt through the Green Bond, also appear as either grossly incompetent and/or all too ready to put themselves above the law.

The State Government also appears as completely derelict in its responsibilities, and this warrants thorough investigation.

  • The deficiencies I see in the State Government’s approach to the Green Bond are deficiencies I see everywhere in the State Government’s approach to UTAS – principally a total and unquestioning reliance on UTAS in matters where such reliance is totally inappropriate. (See for example my post DPAC Secretary confirms UTAS totally runs the show).

Treasurer Gutwein’s first and second conditions

The first dot point condition in Mr Gutwein’s letter was met, as UTAS had a credit rating from Moody’s at the time of the Green Bond issue.

It is unclear whether Mr Gutwein’s second dot point condition has been met. This condition requires UTAS to use the extra $200 million exclusively for the Southern Infrastructure Program (that is, UTAS’ move to the Hobart CBD).

  • While not as acute as the debt maturity issue, there is still a question whether UTAS is using all the $350 million to move into the CBD. If not, are the funds divided into two pots, with $200 million exclusively for the move into Hobart the CBD? At the least, there needs to be transparency on this matter.

Of course, this raises much bigger issues about the Government’s support for UTAS’ CBD move and what happens to the Green Bond if that move is abandoned. I will be considering the politics of UTAS’ move in my next blog post.

Guarantees

Who guarantees UTAS’ Green Bond debt?

This was an issue of some confusion in the LegCo hearings.

To be clear, there is no explicit guarantee of UTAS’ Green Bond. What I am talking about here is an assumed, or implicit, guarantee, where a party is assumed to guarantee/have ultimate liability for another party’s debts.

On this matter, there was this exchange at the LegCo hearing:

“Ms WEBB – To understand that a bit more – obviously Moody’s Rating Agency does give, I believe, the same credit rating to the state government as it does to UTAS – what you are saying there is that it would be imputed at least that the government is guarantor to borrowings that the university has undertaken. Is that tangibly, formally true?“

“Prof BLACK – You would need to ask the rating agency.” (transcript of 4 May hearing, page 27).

As the Chief Executive Officer of a very large public institution, VC Black might have been expected to know the answer to this question and indeed he purported to know the answer when, shortly after, he agreed with Ms Webb’s speculation that Moody’s might have understood the State Government to have ultimate liability for UTAS’ debt (that is, to implicitly guarantee UTAS debt).

This is not what Moody’s says.

In it 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 assumes that UTAS’ borrowings are backed by an implicit guarantee from the Commonwealth not the Tasmanian Government. Similar assumptions were made by Moody’s in its two previous credit ratings it provided for UTAS.

Again, as the CEO of a major public institution, the VC could reasonably be expected to have read and understood the credit rating provided by Moody’s in respect of UTAS’ $400 million debt.

  • Personally, 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, I believe it is Tasmania that would bear the cost.

Explicit guarantee of UTAS’ debt

The transcript (page 27) from the LegCo hearings of 4 May 2023 includes the following exchange:

“Ms WEBB – Right. I am interested to know more formally, has the state government given guarantees of any description in support of any UTAS borrowings, say, just even in the last five years? Perhaps you can go back further than that. But is that something that has formally occurred?

Prof BLACK – No.”

VC BLACK COULD NOT HAVE BEEN MORE WRONG – his error made worse by his emphatic delivery.

The Tasmanian Government provided an explicit guarantee of UTAS’ debt facility of $200 million to Tascorp during the Covid lockdown period on 15 June 2020. (For more detail see the Chronology in my previous Green Bond post).

The guarantee ceased when UTAS refinanced its Tascorp debt facility through the market. (See entry for 27 October 2021 in the Chronology in my previous Green Bond post).

This guarantee is also referred to in the last paragraph of Mr Gutwein’s letter that I have reproduced above, which the VC should have been totally familiar with.

  • VC Black had a written brief on the Green Bond from which he read in the 4 May 2023 LegCo hearing.

Moreover, on 3 August 2020, Mr Tony Ferrall, the Secretary of Treasury wrote to VC Black referencing the provision of the guarantee to UTAS (and the borrowing limit of $200 million) and advised him that for transparency and consistency there would need to be disclosure of the Government’s explicit support (the guarantee) in UTAS’ financial statements. (For more detail see the Chronology in my previous Green Bond post).

  • I have also not been able to find any references to the guarantee to UTAS in any other public documents – for example, it is not mentioned in the Treasurer’s Annual Financial Reports.

  • The apparent lack of transparency around the Government’s guarantee to UTAS should be of concern, especially given Mr Ferrall’s request and the VC’s unequivocal “No” to Ms Webb.

Not in my time

VC Black’s performance on two other questions on 4 May 2022 is notable.

First:

“Ms WEBB – ….Is it something that UTAS and the state government have discussed in terms of the arrangements under section 7(2) of the act – whether there’s an implication, just by virtue of having that clause in the act, that the state government is potentially held liable in that way?

Prof BLACK – I’ve never had such a discussion.

Ms WEBB – Do you know if it’s been held before your time?

Prof BLACK – I wouldn’t know before my time.

Ms WEBB – So, your understanding is there’s not a record within UTAS that that’s been something that’s been discussed or clarified?

Prof BLACK – I’ve never sought to see if there was such a record.” (transcript, page 29)

This is not good enough. I suggest that as the CEO of a very large public institution, and as the officer of UTAS ultimately responsible for UTAS’ $400 million borrowings, the VC find out whether there was any discussion before his time and, anyway, look to have a discussion with the Treasurer soon. They may also want to discuss whether the Commonwealth is likely to be relaxed about Moody’s assumption that it has liability for UTAS’ debt – debt based on an invalid borrowing approval.

Second:

“Ms WEBB – When I asked earlier about whether those other borrowings models were covered by section 7(2), you spoke about the green bond required approval and that came with conditions; but I don’t think you mentioned the Spark living arrangement – a borrowing-like arrangement. Is that captured under section 7(2)?

Prof BLACK – I wasn’t here at the time so we’d need to provide you with an answer to that, as to how that operated. It’s not a straightforward transaction because it’s netted off against the income stream of that particular asset. It is quite a complex financial structure so we’ll need to provide it on notice.

Ms WEBB – I’d like to understand whether it is and was captured under section 7(2) at the time that it occurred.

Prof BLACK – We can provide that on notice.” (transcript, pages 29-30)

The Spark arrangement, which involves UTAS ‘licensing’ forward rents on accommodation properties [NB: the page originally linked here has been deleted from the Ashurst website], has so far included:

  • The balance of the related ‘Grant of right to Operate’ liability being booked at $180.3 million at 31 December 2021 (UTAS Annual Report for 2021, page 83).

These are very large sums of money and the “before my time” excuse simply does not wash. VC Black should be totally across everything to do with the Spark arrangement, and he should have been prepared for LegCo, particularly as there had been some questioning about the arrangement in previous hearings (transcript of 1 March 2022 hearings, page 33). Whether the Spark arrangement was an approved borrowing is not a difficult question. Whether the VC’s “before my time” answer here was tactical, to avoid further questioning, or an admission of ignorance, it was not good.

Questions for UTAS and the State Government and agencies

Further to UTAS’ evidence to the LegCo on 4 May 2023, these are examples of questions that could be asked of UTAS and the State Government/agencies.

UTAS

Can UTAS release all records relating to Moody’s rating of UTAS?

Can UTAS provide a copy of the prospectus issued to potential investors in respect of the Green Bond? If not, why not?

Can UTAS provide copies of all correspondence that it has had with the State Government/agencies in respect of the Green Bond?

Can UTAS provide copies of all correspondence it has had with the State Government/agencies in respect of borrowing approvals from 1 January 2019 to date?

Can UTAS provide copies of all briefing material provided to UTAS Council members in relation to the requirement for State Government borrowing approval under section 7(2) of the UTAS Act in the period 1 January 2021 to date?

Can UTAS release all legal advice (obtained from internal or external sources) relating to borrowing approval and the Green Bond since 1 January 2019 to date?

Can UTAS release all records it holds in relation to the Spark arrangement, particularly in relation to the question of whether it should be classed as a borrowing and whether State Government advice was sought on this matter?

Will UTAS make all business cases and the recent Deloitte Access Economics’ research on UTAS’ proposed move to the Hobart CBD available?

What revenues and costs is UTAS assuming for the redevelopment of its Sandy Bay site?

How do UTAS’ business cases not pre-empt planning approvals? For example, is an allowance for regulatory risk built in?

Can UTAS provide any evidence, including in UTAS Council Minutes, that the issue of social licence for the Hobart CBD move was considered by the UTAS Council in the period 1 January 2015 to date, and particularly before the UTAS’ Council’s formal decision to move to the Hobart CBD on 5 April 2019?

What does VC Black mean by “it rachets back” on page 29 of the transcript of the 4 May 2023 hearing?

On page 31 of the transcript, VC Black states:

“To be clear, however, if it developed any property, those properties would pay tax, just as any other entity would be.“

Does this include income tax?

State Government/agencies

Can the State Government explain how it believes a conditional approval granted in March 2021 for an increase in borrowing from $200 million to $400 million can be held to apply to UTAS’ refinancing in March 2022, given that that approval was predicated on UTAS maintaining its then $200 million borrowing facility with Tascorp?

In particular, can the State Government explain how a maturity profile for $200 million can be held to apply to UTAS’ $350 million Green Bond issue and new short-term financing facility?

What discussions have State Ministers held with UTAS regarding UTAS’ Green Bond debt and purported borrowing approval to date?

Can state agencies provide copies of all correspondence with UTAS regarding the Green Bond?

Can state agencies release all legal advice received in relation to UTAS’ borrowing and borrowing approvals from 1 January 2019 on, particularly relating to the Green Bond?

Are state agencies familiar with Moody’s rating of UTAS?

What engagement did the State Government/agencies have with Moody’s in relation to its rating of UTAS?

Does the State Government believe that Moody’s is right to assume an implicit Commonwealth guarantee applies to UTAS’ debt?

If yes, has it advised, or consulted with, the Commonwealth Government on this matter?

If no, what has it done to rectify Moody’s error? Has it, for instance, advised Moody’s that it should assume an implicit guarantee of UTAS by the Tasmanian State Government?

If no, has it/will it record UTAS’ debt as a contingent liability?

If not, why not?

Have state agencies considered the green credentials of the so-called Green Bond?

In other words, have state agencies considered the impact on the environment of UTAS’ move to the CBD in respect to matters such a traffic flows, the construction and demolition of buildings, and impacts on heritage sites, native habitat and amenity?

What analysis of any kind have State Government agencies undertaken of UTAS’ planned relocation to the CBD and redevelopment of Sandy Bay as, in effect, a new suburb?

Most particularly, what analysis have State Government agencies undertaken of the economic merits and financial risk associated with UTAS planned CBD move?

Has the State Government taken account of the risks associated with construction, for example, the likelihood of cost overruns, all types of labour and supply constraints (particularly given the proposed AFL stadium at Macquarie Point) and the high rate of failure in the construction industry?

Does the State Government have faith in UTAS’ capacity as a developer?

What is the State Government’s view of UTAS’ Spark arrangement?

Has it provided advice to UTAS on this arrangement?

Doesn’t the State Government’s conditional borrowing approval of 3 March 2021 signal its absolute commitment to UTAS moving to the Hobart CBD, given that the $200 million increase in UTAS’ borrowing limit is conditional on that whole amount being spent on the move to the Hobart CBD?

Why has this support for the move not been stated as formal Government policy?

There are many other questions that could be asked.

By : Robert Hogan