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Dutch State Treasury Agency
Investor presentation
Asia Roadshow 31 October - 4 November 2016
Latest update: 28 October 2016
Content
2 DSTA, investor presentation
1. Introduction 3
2. The economy and the budget 7
3. The Netherlands: fundamentally strong 10
4. The debt position & funding in 2016 13
5. Funding plan 2016 22
Supplement I: Trade, housing, labour, pensions, financial sector 27
Supplement II: DDA explained 39
Supplement III: Funding instruments 46
Supplement IV: Secondary market 51
The economy and the budget
Projections: strong economic performance
4
Source: CPB, Netherlands Bureau for Economic Policy Analysis, 20 September 2016.
DSTA, investor presentation
Key economic figures 2015-2017
2015 2016 2017 (% change, year on year)
GDP 2.0 1.7 1.7
Household consumption 1.8 1.3 1.8
Capital formation (including inventories) 6.2 5.0 3.8
Government consumption 0.2 0.8 1.0
Exports 5.0 3.2 3.1
Imports 5.8 3.7 3.8
Unemployment (% of labour force) 6.9 6.2 6.2
Inflation (HICP) 0.2 0.0 0.5
Government finances
5
Key budgetary figures (% GDP) 2012 2013 2014 2015 2016 2017
EMU-balance -3.9 -2.4 -2.4 -2.3 -1.1 -0.5
EMU-debt 66.4 67.9 68.2 66.8 63.4 62.1
Source: Ministry of Finance, Budget Memorandum 2017, 20 September 2016.
DSTA, investor presentation
Government finances compared (2016)
6
Source: European Commission Spring Forecast, May 2016
Belgium
Germany
France
Finland
Austria
Italy
Netherlands
Spain Euro area
50
70
90
110
130
150
-4.5 -4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5
EMU debt
(% of GDP)
Budget deficit (% of GDP)
DSTA, investor presentation
7 DSTA, investor presentation
Fundamentally strong
Among the most competitive countries worldwide
8
Source: World Economic Forum, 27 September 2016.
Top 12 countries on the WEF Competitiveness Index
DSTA, investor presentation
1 Switzerland
2 Singapore
3 United States
4 Netherlands
5 Germany
6 Sweden
7 United Kingdom
8 Japan
9 Hong Kong SAR
10 Finland
11 Norway
12 Denmark
Housing market has recovered
9
Source: CBS, National Statistics Bureau
DSTA, investor presentation
-60
-40
-20
0
20
40
60
-10
-8
-6
-4
-2
0
2
4
6
8
10 house transactions (% y-o-y) (RHS) house prices (% y-o-y) (LHS)
Pensions: reforms to achieve sustainability
10
• Increase in retirement age to 67 in 2021 • Tied to life expectancy after 2021
Source: CBS, National Statistics Bureau, 2014
DSTA, investor presentation
The debt position & Funding in 2016
Debt Outstanding
12
Key figures at the end of September 2016
Instrument (€ mn)
DSL (T-bonds) 316,312
DSL in foreign currency 2,512
DTC (T-bills) 15,930
Private loans 5,863
Private loans in foreign currency* 629
Cash 25
Total debt outstanding** 341,272
** Excluding cash collateral received (€ 20.9 bn).
DSTA, investor presentation
* Debt of the Netherlands Antilles taken over by the Netherlands.
Long-term debt profile
13
Redemptions long-term debt position at the end of October 2016 (€ bn)
DSTA, investor presentation
0
5
10
15
20
25
30
35
40
45
50
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
14 14
Borrowing requirement 2016
Source: DSTA Quarterly Outlook, September 2016
Borrowing requirement (€ bn)
Capital market redemptions 2016 28.1
Money market ultimo 2015 15.2
Cash collateral ultimo 2015 19.4
Cash surplus -0.7
Cash inflow loans Propertize -2.4
Buy-backs DSL 2017 & DSL 2018 5.6
Total borrowing requirement 65.2
DSTA, investor presentation
Note: The estimate for the cash balance excludes receipts resulting from possible sales of shares in state owned enterprises in the future.
Source: DSTA Quarterly Outlook, September 2016
15
Funding in 2016
Funding (€ bn)
Capital Market (cash terms) 28.2
o/w in nominal value 26.3
o/w proceeds from bonds issued above par 1.9
Money market ultimo 2016 16.1
Cash collateral estimate ultimo 2016* 20.9
Total funding 2016 65.2
* Based on the outstanding amount at the end of August and assuming cash collateral is constant for the remainder of the year.
• Money market is the primary buffer
• New in 2016: target range capital market
Source: DSTA Quarterly Outlook, September 2016
DSTA, investor presentation
16
DSL issuance in 2016
DSL Outlook 2016
(€ bn) Realized (€ bn)
Due 2016 (€ bn)
New 10-year DSL 15 12.8 1.5-2.5
New 5-year DSL* 7.5 – 10 8
Reopening longer dated off- the-run DSLs 2.5 - 5 3.5
Total DSL funding 25 - 30 24.3
* Will be reopened again in 2017 to reach at least € 15 bn
Source: DSTA Outlook 2016, 11 December 2015 & Results Issuance DSLs, 11 October 2016
DSTA, investor presentation
Funding requirement 2017
17
Borrowing requirement 2017, first estimate (€ bn)
Capital market redemptions 2017* 43.0
Money market ultimo 2016 16.1
Cash collateral estimate ultimo 2016 20.9
Cash deficit 0.7
Total borrowing requirement 80.7
* This includes DSL redemptions in euro’s and US dollars as well as repayments of debt obligations from previously state-owned enterprises Fortis and Propertize and of loans from the Netherlands Antilles
Note: The 2017 funding plan will be published in the Outlook 2017 on 15 December 2016
DSTA, investor presentation
Source: DSTA Quarterly Outlook, September 2016
11 december 2009
Outlook 2010 18
Plaatje funding plan
Funding in 2016 Secondairy markets Secondary markets
Ensuring liquidity in secondary markets
19 DSTA, investor presentation
• Annual issuance of a new 10-year bond
• Raising the outstanding amounts to at least € 15 bln. of bonds up to and including 10-years, longer dated bonds up to € 10 bln., within 12 months.
• Frequent reopening of off-the run DSLs in consultation with our Primary dealers
• Annual discussion with Dutch Investors on perceived liquidity
• Quotation obligation for Primary Dealers to ensure tradable prices to be available at all time
• Repo facility available to Primary Dealers (‘lender of last resort’)
Secondary market
20
PD reported DSL turnover, 2013-2016 (Q1-Q3), by remaining maturity (in € bn)
Source: SMTR
DSTA, investor presentation
0
50
100
150
200
250
0 <= 1 1 <= 3 3 <= 5 5 <= 7 7 <= 10 10 <= 15 >15
2013 Q1-Q3 2014 Q1-Q3 2015 Q1-Q3 2016 Q1-Q3 Outstanding amount, quarterly average
Supplement I
Structural reforms
22
Housing market
• Reduced mortgage interest tax deductibility (new and existing loans)
• New mortgages to be redeemed in full during the lifetime of the loan
• Property transfer tax lowered from 6% to 2%, maximum LTVs and LTI’s down
• Rents will be more market-based, and increased more for relatively higher incomes
Pensions/retirement
• Retirement age increased to 67+ from 2021 onwards
• The maximum pension accrual qualifying for tax relief curtailed
Health care
• More long-term care will be provided outside homes for the elderly, by local governments
• More limited health insurance coverage, higher contributions by the insured
• Increased competition in the health care sector
Labour market
• Dismissal procedures simplified, increases labour market flexibility
• Access to unemployment benefits more stringent, stimulating labour supply
DSTA, investor presentation
Strong current account surplus
23
Current account balance 2016 (% of GDP)
Source: European Commission Spring Forecast 2016, May 2016
DSTA, investor presentation
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Swit
zerl
and
Net
her
lan
ds
Ger
man
y
No
rway
Den
mar
k
Irel
and
Swed
en
Au
stri
a
Ital
y
Bel
giu
m
Spai
n
Po
rtu
gal
Fin
lan
d
Fran
ce
Un
ited
Kin
gdo
m
Among the richest countries in Europe
24
Source: Eurostat
Real GDP per capita (PPS, 2015, index)
DSTA, investor presentation
0 20 40 60 80 100 120 140
Ireland
Netherlands
Austria
Denmark
Germany
France
Euro Area
EU
Italy
Decline in ‘underwater mortgages’
25
Source: CBS, National Statistics Bureau (2016)
Mortgages under water (% of total mortgages)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DSTA, investor presentation
Households have strong asset position
26
0 50 100 150 200 250 300 350
Netherlands
United Kingdom
Belgium
Denmark
Sweden
Portugal
Italy
France
Ireland
Germany
Spain
Austria
Greece
Luxembourg
Finland
2007 2012
Household assets and liabilities (% GDP) Household financial assets (% GDP)
Source: Eurostat, 2013
Source: DNB in the Governments’ Budget Memorandum
DSTA, investor presentation
0 200 400 600
1995
2007
2015
Pension assets Housing assets
Deposits Other assets
0 200 400 600
1995
2007
2015
Net assets Mortgage debt
Other debt
Pension assets internationally (% GDP in 2015)
27
Source: Willis Towers Watson, Global Pension Asset Study, 2016
0 20 40 60 80 100 120 140 160 180 200
Netherlands
US
Australia
Switzerland
UK
Canada
Japan
South Africa
Ireland
Hong Kong
Germany
Brazil
France
DSTA, investor presentation
Labour market recovery
28
Source: CBS, National Statistics Bureau (2016)
DSTA, investor presentation
-200
-150
-100
-50
0
50
100
150
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
20
12
Jan
20
12
Mar
20
12
May
20
12
Ju
ly
20
12
Sep
20
12
No
v
20
13
Jan
20
13
Mar
20
13
May
20
13
Ju
ly
20
13
Sep
20
13
No
v
20
14
Jan
20
14
Mar
20
14
May
20
14
Ju
ly
20
14
Sep
20
14
No
v
20
15
Jan
20
15
Mar
20
15
May
20
15
Ju
ly
20
15
Sep
20
15
No
v
20
16
Jan
20
16
Mar
20
16
May
20
16
Ju
ly
Employment (thousands, y-o-y) (RHS) Unemployment (% labour force) (LHS)
29
Unemployment remains low in European context
Unemployment rate (2015, % of labour force)
Source: Eurostat
0 5 10 15 20 25
Germany
United Kingdom
Denmark
Austria
Netherlands
Belgium
European Union
Ireland
Finland
France
Euro area
Italy
Portugal
Spain
DSTA, investor presentation
Export performance by product category
30
Exports by product category (% of total)
Source: CBS, National Statistics Bureau (2015)
DSTA, investor presentation
Machinery and transport equipment
Chemicals & related products, n.e.s.
Mineral fuels, lubricants, relat. mat
Food and live animals
Miscellaneous manufactured articles
Manufactured goods classified by mat.
Crude materials, inedible ex. fuels
Other
Export performance by country destination
31
Split of exports: EU and non-EU (% of total)
Source: CBS, National Statistics Bureau (2015)
Rank Country Share
1 Germany 23.2 %
2 Belgium 10.4 %
3 United Kingdom 8.9 %
4 France 8.1 %
5 United States of America 4.2 %
6 Italy 4.1 %
7 Spain 2.9 %
8 Poland 2.4 %
9 China 2.0 %
10 Sweden 1.8 %
11 Czech Republic 1.6 %
12 Other Central and South America
1.5 %
13 Denmark 1.4 %
14 Switzerland 1.3 %
15 Turkey 1.3 %
DSTA, investor presentation
Financial sector interventions
1. Nationalizations: ABN Amro and ASR (2008, as part of nationalization of Fortis NL),
SNS REAAL(2013)
Financial institutions which are or will be privatized:
• REAAL (the former insurance part of SNS REAAL) was sold in early 2015
• ABN Amro – IPO in November 2015; 23% was sold for € 3.8 bn; remainder will be sold in the coming years
• ASR – IPO in June 2016; 36% was sold for €1.1 bn; remainder will be sold in the coming years
• SNS Bank (the former banking part of SNS REAAL) – privatization in due time
• Propertize (the former real estate part of SNS Bank) was sold on 27 September 2016 for € 0.9 bn
2. Capital support (2008) to ING (€ 10 bn) and AEGON (€ 3 bn) is repaid in full 3. Guarantee scheme for medium-term bank debt was wound down at the end of 2014 4. Alt-A portfolio (US-RMBS) of ING was sold end 2013 / early 2014
32 DSTA, investor presentation
Supplement II
The DDA explained
A short overview
• Rule-based auction all investors receive equal treatment
• Primary auction with direct participation of end-investors
• A single uniform price winner’s curse avoided
• Bids can be placed via Primary Dealer(s) of choice and orders can be split via several dealers
• The DSTA is the sole book runner
- Level playing field among all Primary Dealers
- Confidential participation of investors
• PDs must sign a DDA Allocation and Price Compliance Statement as indicated in the General Conditions for PDs (www.dsta.nl/english/Subjects/Primary_Dealers)
The DDA rules can be found on the DSTA’s website: www.dsta.nl
34 DSTA, investor presentation
Bidding
• Bids are placed at increments of 0.5 bps to the reference bond or ‘at best’
• Maximum bid of € 300 million per spread point;
• An investor may split orders among Primary Dealers up to the maximum allowed
(€ 300 million per spread)
• There is no pot in the DDA: Primary Dealers are rewarded for overall DDA
performance
• Bids ‘at best’ are at all times equal to bids at the tightest spread
The DDA rules can be found on the DSTA’s website: www.dsta.nl
35 DSTA, investor presentation
Focus on real money clients
• Allocation: Real Money clients receive priority at the cut-off spread
Safeguarding instant liquidity
• DSTA reserves the right to raise the allocation to ‘Other clients’ up to 35% of the total allocated amount
Investor classification
36
Real money clients Other clients
Asset and Fund managers Hedge funds
• Central banks • Agencies • Supranationals
All accounts of banks, except: • Treasury/ ALM accounts of banks • Private banks
Insurance companies Other trading desks
Pension funds
Private banks
Treasuries / ALM accounts of banks
DSTA, investor presentation
Mechanics of allocation: an example
37
Order book
Transaction
Spread 17 to 18 bp
Target size € 4 - 6 bn
Book size € 10.5 bn
Spread At best 17 17.5 18
Real money 1500 1000 1500 1500
Other 1000 2000 1000 1000
Total 2500 3000 2500 2500
Cumulative 5500 8000 10500
Details
DSTA, investor presentation
Allocated amount: € 6000
Uniform cut off: +17.5
Order book
Allocation
Allocation at cut-off:
Real Money 33 % Others 0 %
Mechanics of allocation – scenario 1
38
Spread At best 17 17.5 18
Real money 1500 1000 1500 1500
Other 1000 2000 1000 1000
Total 2500 3000 2500 2500
Cumulative 5500 8000 10500
Spread At best 17 17.5 18
Real money 1500 1000 500 0
Other 1000 2000 0 0
Total 2500 3000 500 0
Cumulative 5500 6000
DSTA, investor presentation
Allocated amount: € 5000
Uniform cut off: +17
Order book
Allocation
Allocation at cut-off:
Real Money 100% Others 83%
Mechanics of allocation – scenario 2
39
Spread At best 17 17.5 18
Real money 1500 1000 1500 1500
Other 1000 2000 1000 1000
Total 2500 3000 2500 2500
Cumulative 5500 8000 10500
Spread At best 17 17.5 18
Real money 1500 1000 0 0
Other 833 1667 0 0
Total 2333 2667 0 0
Cumulative 5000
DSTA, investor presentation
Supplement III Funding instruments
40
41
Funding instruments: the capital market
Dutch State Loans (T-bonds)
• Focus on issuance in EUR
• Maturities: focus on 3- or 5- years and 10-years
• Commitment to the long end of the curve (up to 30-year segment)
• Auctions on fixed dates: 2nd and (if needed) 4th Tuesday of the month
• Quarterly issuance calendars
• Dutch Direct Auctions for new medium and longer-dated DSLs
• Benchmark sizes minimum € 15 bn per DSL and € 10 bn for 30-year DSLs
• Buy-backs for cash management purposes (up to 24 months remaining maturity)
• Possibility of issuance of USD Dutch State Bonds
DSTA, investor presentation
42
Funding instruments: the money market
Dutch Treasury Certificates (T-bills)
• Maturities: 3 to 6 or 12 months
• Auctions: twice a month on Monday
Commercial Paper (CP)
• Maturities up to 1 year (focus on up to 3 months)
• In EUR, USD, GBP, CHF and NOK
• No auctions, initiative with counterparty
• Foreign currencies fully hedged
Deposits (“Cash”)
• Borrowing short term; large amounts if necessary
• Lending: unsecured and secured (reverse repo: buy-sell-back)
• In EUR and borrowing also in USD
DSTA, investor presentation
43
Primary Dealer group for 2016
* Also Commercial Paper Dealer
ABN Amro Bank Barclays Capital* Citigroup*
Commerzbank* Deutsche Bank Goldman Sachs
HSBC France ING Bank* Jefferies
Natixis Nomura Rabobank*
Royal Bank of Scotland* Société Générale
BBVA Crédit Agricole DZ Bank
Nordea Santander GB&M UBS
6 Single Market Specialists
DSTA, investor presentation
Supplement IV Secondary Market
44
45
QE and DSL
• Capital key of the Netherlands for PSPP is 5.7%
• ECB (DNB) buys approx. € 2.8 bn per month of DSLs (from April 2016 onwards)
• Amount of DSLs bought under PSPP totals 57 bn (September2016)
• Average maturity of DSL holdings is approx. 7.9 years (September 2016)
• DNB has a securities lending facility
• DSTA has a repo facility for PDs (lender of last resort)
DSTA, investor presentation
Investor base 2016 DDAs
46 DSTA, investor presentation
37%
25%
23%
13%
2%
Banks and trusts
Treasuries and ALM accounts of banks
Hedge funds
Asset and fund managers
Central banks, agencies and supranationals
29%
24%
22%
8%
6%
4% 7% United Kingdom
Netherlands
United States
France
Italy
Spain
Other
Geographical distribution (%)
Investor type distribution (%)
5-year DDA DSL 2022, June 2016 10-year DDA DSL 2026, March 2016
27%
27% 16%
15%
10%
5%
Asset Management
Banks and trusts
Central banks, agencies and supranationals
Asset Liability Management
Hedge funds
Pension funds and insurance companies
30%
19% 18%
9%
8%
7%
7%
2% United Kingdom
Netherlands
Other EU
United States
Germany
France
Asia
Rest of the world
Contact Details
• Website: www.dsta.nl • E-mail: dsta@bloomberg.net • Twitter: @dsta_nl • Bloomberg: DSTA <GO>
• Dutch State Treasury Agency Ministry of Finance Korte Voorhout 7 PO Box 20201 2500 EE The Hague The Netherlands
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