Transcript OT secondary market driven by MTS Portugal

The Next Step
in the Development of the OT Benchmark Curve
July 2006
Republic of Portugal
CONTENTS:
 Section 1: New issue summary
•
Section 2: Portugal’s Public Finance Reform Programme
•
Section 3: Debt management and funding
2
Key new issue considerations
 The new OT provides an attractive yield pick-up on asset swap basis versus
technically tight core issues
 Portugal has a highly liquid and comprehensive yield curve with a
government bond segment up to 30 years
 A very internationalized and diversified base of investors in the OT market
 Recent OT issuance into the 30-year has enhanced support for the OT curve
with a broadened investor base
 Portugal is committed to having manageable amounts of debt due for
redemption in any year; this reduces refinancing risks and aids secondary
market performance
 A new 10-year benchmark OT will complete and consolidate Republic of
Portugal’s comprehensive and liquid yield curve
3
The new benchmark OT 2011
The new benchmark OT 2016
OT October 15, 2016
 A new Euro benchmark bond to
further complete the Portugal’s
maturity curve and to provide
liquidity for investors
Issue Details
Issuer:
Republic of Portugal
(AA-/Aa2/AA)
Initial size:
EUR 3 billion
 To reach a final size no lower than
EUR 5 billion giving enhanced
liquidity to the OT yield curve
Launch and pricing:
TBA
Start of book building:
TBA
Maturity:
October 15, 2016
 Under market-making obligations
on MTS Portugal and EuroMTS
Joint-Leads Managers:
CGD, Citigroup, Goldman
 To be admitted as a benchmark
issue by Tradeweb and Bondvision
Sachs, Morgan Stanley,
SG CIB
Co-Leads:
The remaining PD
4
OT issuance in 2006
Until now
Syndicated issue of OT 2037
Final book distribution
OT April 2037 -> EUR 3 billion launched via syndication in
March with a strong participation of international investors plus
EUR 1.1 billion through auction
Scandinavia
3%
Italy
3%
Portugal
4%
Spain
2%
Other
3%
Germany
26%
France
6%
OT April 2011 -> EUR 3 billion through auctions
USA
7%
OT July 2009 -> EUR 1 billion through auction
Ireland/UK
24%
THE NEXT STEP: The new OT 2016
Benelux
22%
OT/PGB benchmark yield curve
The new OT 2016
6,000
4,000
3,000
2,000
OTApr37
OTApr21
OTOct15
OTJun14
OTSep13
OTJun12
OTJun11
OTApr11
OTMay10
OTJul09
0
OTJul08
1,000
OTAug07
EUR millions
5,000
5
CONTENTS:
•
Section 1: New issue summary
 Section 2: Portugal’s Public Finance Reform Programme
•
Section 3: Debt management and funding
6
Portuguese public finance reform programme
 A stable political and social environment
•
The two main political parties have the backing of roughly 80% of the
Portuguese voters and share the objective of budgetary consolidation
•
A government with absolute majority in the Parliament since February 2005
•
A new President of the Republic was elected in January 2006
•
No elections in the near term (until 2009 for Central and Local Government
and 2011 for the Presidency)
•
A high degree of social consensus
7
Portugal’s public finance reform programme
 The Portuguese government has a strong mandate to put public finances
on a sustainable footing
 The Stability and Growth Programme (SGP), 2005 - 2009 (December
2005) includes a comprehensive set of measures aimed at a major
overhaul of public finances, including the following:
 Central Government restructuring
 Social Security reform
 Improvement in the use of public resources
 Fight against fraud and tax evasion
 2006 Budget Law presented to the Parliament reaffirms the
Government’s commitments and objectives included in the SGP
8
The Stability and Growth Programme
 Public finances in the medium-term: SGP 2005-2009
 Government committed to reduce budget deficit over the coming years
 Deficit reduction based on structural measures rather than on one-off and
temporary measures
75
7
4.3
3.7
4
3
2.7
2.9
2.9
2.9
2
3.2
2.6
1.5
1
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(As a percentage of GDP)
4.6
Gross debt
(As a percentage of GDP)
Budget deficit
6
5
Forescast
Forecast
6.0
68.7
70
69.3
68.4
66.2
63.9
65
58.7
60
57.0
55.5
55
52.9
51.4
50.4
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: SGP (December, 2005)
9
Portuguese economy on recovery path
5
4.0
Forecast
4
3.9
3.5
3.0
2.4
2.0
1.8
2
1.2
1.1
0.8
1
0.4
0
-1
-1.1
-2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Harmonized ICP
(% change)
Real GDP growth
3
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
II
III
IV
I
2004
Source: Bank of Portugal
II
III
2005
IV
Jan
Feb
Mar
2006
Apr
May
Economic Sentiment Indicator
Monthly Coincident Indicator
Source: SGP (December, 2005)
(%, YoY change)
3.9
Portugal
3.0
2.5
2.0
Euro area
1.5
1.0
0.5
0.0
II
III
IV
I
II
2004
III
IV Jan Feb Mar Apr May
2005
2006
Source: Bank of Portugal
98
96
94
92
90
88
86
84
82
II
III
IV
I
II
III
IV
Jan Feb Mar Apr May
Source: Bank of Portugal
10
Structural reforms…
 Measures to reduce public expenditure
 Reforming the Public Administration
•
Cost control of the human resources expenditures
•
New rules and guidelines to improve human resources management
 Promotion of the sustainability of the social security system, through
fundamental changes of applicable rules, in line with major demographic
trends
11
Structural reforms…
 Measures to reduce public expenditure
 Improving the use of public resources
•
Streamlining of the fundamental public services (education, healthcare, justice and local
Government), including the harmonization of public health protection systems in line with
the private sector regime
•
Rationalization of real-estate properties
 Budgetary control
•
Review of legislation regarding the framework of Local Authorities financing system,
including the strengthening of financial reporting obligations
•
Creation of the position of (strong) Financial Controller in each ministry
•
Wage moderation (growth rates in line or below the inflation rate)
12
… underpinning fiscal consolidation
 Measures to increase tax revenue
 Tax rate increases
•
Increase in VAT, as well as in personal income tax rate, with some of the revenue assigned
to the social security system
•
Tax increase on tobacco and fuel
•
New additional personal income tax bracket for the highest incomes
 Fight against fraud and tax evasion
•
Lifting banking secrecy for tax purposes
•
Publication of tax debtors list
•
New debt recovery instruments and mechanisms, significant worsening of sanctions for
non-compliance with tax obligations)
 Reduction of tax benefits and exemptions
13
Supported by an important privatisation programme
 At least 80% of the revenues will be used to reduce the outstanding
government debt, thus reducing the borrowing needs
 Expected privatisation revenues
Privatisation revenues
% GDP
2006
1.600,0
1.1
2007
800,0
0.5
(EUR millions)
2008
2009
700,0
600,0
0.4
0.3
 Privatisation Programme
Privatisation program for 2006-2007
Sectors
Pulp and paper
Oil and gas
Electricity
Electricity transmission
Portuguese airlines
Air navigation public services
14
Portuguese fiscal foundations
Portugal has a lower debt burden than euro area average and better
than “core” Europe and other rating peers
General government gross debt - 2005
120
100
(As a % of GDP)

80
Euro area average = 70.8%
60
40
20
0
GRE
ITA
BEL
GER
FRA
POR
AUS
NETH
SPA
FIN
IRE
Source: European Commission, May 2006
15
CONTENTS:
•
Section 1: New issue summary
•
Section 2: Portuguese Public Finance Reform Programme
 Section 3: Debt management and funding
16
A market driven borrowing strategy
 Aiming at building up a Portuguese benchmark yield curve
The most important driving
factor:
The main pillars:
Liquidity
•
Size
•
Tradability – Efficient and standard market conditions
 Priority to the development of a
government benchmark yield curve
 Interest rate and refinancing risk
management
•
Predictability
•
Transparency
•
Accountability
A market oriented borrowing
strategy
Active debt management derivatives and buy-backs
17
OT issuance process

 OT launched through syndication…
OT issuance schedule
EUR billion
1 bln
1 bln
 Building up an international and diversified
investor base
 Benchmark size: € 3 billion
1 bln
 Allowing the benchmark OT to be traded in MTS
Portugal with quoting obligations from start
3
bln
… and increased through auctions
Syndicate
+ 1st
auction
+ 2nd
auction
+ 3rd
auction
Full pot
 OT syndication process
 PD are the only underwriters
 PD committed to place bonds in high quality
investors
 IGCP is the active manager
Joint
-Leads
CoLeads
Retention
+
Co-lead
pot
 E-book building
18
An efficient and liquid secondary market
ABN Amro Bank
Banco Espírito Santo
Barclays Bank PLC
BCP de Investimento
BNP Paribas
Caixa Geral de Depósitos
Citigroup Global Markets
CALYON
Deutsche Bank
Goldman Sachs International
HSBC France
Lehman Brothers International
Morgan Stanley
Société Générale
Unicredit Banca Mobiliare
 In parallel quotation with EuroMTS
 MEDIP/MTS Portugal a regulated “local” market
 Driven by market-making obligations from Primary
Dealers
 Market-making obligations in line with other MTS
platforms
 Prices spreading over other market segments
11 Market Dealers
Fortis Bank
Banco Santander C. Hispano
CCCAM
CDC IXIS
CECA
Commerzbank
Credit Suisse First Boston
Dresdner Bank
JP Morgan Securities
Landesbank B-W
Nomura International
WestLB
OT secondary market driven by MTS Portugal
 All OT listed in Lisbon on MEDIP/MTS Portugal
16 Market Makers
15 OEVT/ Primary
Dealers
Participants in MEDIP/MTS Portugal
 Trading spreads within a narrow range and similar
to market peers
 Settlement through Euroclear/Clearstream
 Prices disclosed in real-time to non participants:
Reuters PT/MTS1 and Bloomberg
 Daily turnover, reference prices and a daily fixing
in www.mtsportugal.com
19
An efficient and liquid secondary market
(as of June 16, 2006)
 5-year bid-offer spreads
 10-year bid-offer spreads
Maximum B/O spreads of 4 ticks
5
4
4
Ticks
3
2
3
2
1
1
 15-year bid-offer spreads
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
20
18
16
14
12
Jun-06
May-06
Apr-06
10
8
6
4
2
0
Mar-06
Ticks
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
May-05
5
4
3
2
1
0
Apr-05
Jul-05
Maximum B/O spreads of 20 ticks
10
9
8
7
6
Mar-05
Jun-05
 30-year bid-offer spreads
Maximum B/O spreads of 10 ticks
Ticks
May-05
0
Apr-05
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
May-05
Apr-05
Mar-05
0
Mar-05
Ticks
Maximum B/O spreads of 5 ticks
20
An efficient and liquid secondary market
(as of June 16, 2006)
 OT Daily average turnover in MTS Portugal and EuroMTS
 Very liquid wholesale cash and repo segments
1000
EuroMTS
MTS Portugal
400
200
J*
M
A
M
F
J2006
D
N
O
S
A
J
J
M
A
M
F
J2005
2000
 Jan-June 2006 : € 531.3 million
2004
0
2003
 2005 : € 517.5 million
600
2002
MTSP OT daily average turnover in
2001
•
EUR million
800
OT Repo Market Daily Average Turnover
3000
600%
As % of cash turnover
500%
1500
400%
300%
1000
200%
500
100%
0
0%
21
as % of cash turnover
IGCP to all market makers in MTSP
2000
700%
Daily average turnover
J 2002
F
M
A
M
J
J
A
S
O
N
D
J 2003
F
M
A
M
J
J
A
S
O
N
D
J 2004
F
M
A
M
J
J
A
S
O
N
D
J 2005
F
M
A
M
J
J
A
S
O
N
D
J 2006
F
M
A
M
J*
A last resort repo window provided by
EUR million
•
2500
800%
Highly internationalised and diversified OT market
 Around 85% of the turnover* in the OT secondary market is generated by
non-domestic investors
Pension
Funds &
Insurance
9%
Brokers
8%
Central
Banks
4%
Other non-EMU
Belgium &
6%
Luxembourg
Finland
Other EMU
9%
0.5%
2%
Netherlands
Portugal
1%
15%
Italy
6%
Other
1%
Spain
4%
Other
Investment
Funds
17%
Banks
61%
France
13%
UK
34%
Germany
10%
*Turnover with final investors reported by PD (excluding intra-PD trading) - 2005
22
IGCP:
Tel: +351 21 7923300
Fax: +351 21 7993795
E-mail:[email protected]
Further information on the Portuguese
economy can be obtained from:
Economic Research and
Forecasting Department at the
Ministry of Finance
www.dgep.pt
Budget Department
www.dgo.pt
National Statistics Office
www.ine.pt
Banco de Portugal (Central bank)
www.bportugal.pt
Web site: igcp.pt
Reuters pages: IGCP01
Bloomberg pages: IGCP
Further information on the Portuguese
secondary market can be obtained
from:
MTS Portugal: www.mtsportugal.com
Reuters pages: PT/MTS1
DISCLAIMER
The information and opinions contained in this document have been compiled or arrived at from sources believed to be
reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy,
completeness or correctness. All opinions and estimates contained in this document are published for the assistance of
recipients, but is not to be relied upon as authoritative or taken in substitution for the exercise or judgment by a recipient
and, therefore, does not form the basis of any contract or commitment whatsoever. IGCP does not accept any liability
whatsoever for any direct or consequential loss arising from any use of this document or its contents.
23