june 2008 republic of portugal the next step in the development of the ot benchmark curve
TRANSCRIPT
June 2008June 2008June 2008June 2008
Republic of Portugal
The Next Step The Next Step
in the Development of the OT Benchmark Curvein the Development of the OT Benchmark Curve
2
Section 1: New issue summary
• Section 2: Portugal’s Public Finance Reform Programme
• Section 3: Debt management and funding
CONTENTS:CONTENTS:
3
A new OT Oct 2023A new OT Oct 2023OT/PGB yield curve
OT issuance in 2008OT issuance in 2008 € 10 - 12 billion (gross) to be issued through government bonds (OT)
• Two new benchmarks to be launched through syndication
• 10yr benchmark already launched in February – OT Jun 2018
• Reopening of OT previously issued
• € 4.5 billion (gross) already issued
THE NEXT STEP: The new OT October 2023
4
Issuer: Republic of Portugal
(AA-/Aa2/AA)
Initial size: EUR 3 billion
Launch and pricing: TBC
Start of book building: TBC
Maturity: October 25, 2023 (long first)
Joint-Lead Managers: CaixaBI, Citi, HSBC,
Lehman Brothers, Morgan
Stanley
Co-Leads: ABN-AMRO, Barclays, BES,
BNP Paribas, BSCH, Calyon,
HVB, Deutsche
Bank, Goldman Sachs,
ING, SG CIB
Issue DetailsOT October 25, 2023
A new Euro benchmark bond to
further complete Portugal’s
maturity curve and to provide
liquidity for investors
To reach a final size no lower than
EUR 6 billion giving enhanced
liquidity to the OT yield curve
Under market-making obligations
on MTS Portugal and EuroMTS
To be admitted as a benchmark
issue by Tradeweb and Bondvision
The new benchmark OT 2023The new benchmark OT 2023
5
• Section 1: New issue summary
Section 2: Portugal’s Public Finance Reform Programme
• Section 3: Debt management and funding
CONTENTS:CONTENTS:
6
• 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
• There will be no elections until 2009 for Central and Local Government and
2011 for the Presidency
• A high degree of social consensus
Portuguese public finance reform programmePortuguese public finance reform programme
A stable political and social environment
7
Portugal’s public finance reform programmePortugal’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), 2007 - 2011 (December
2007) includes a comprehensive set of measures consistent with a
correction of the prevailing deficit and a progress towards the medium-term
objective, including the following:
Central Government restructuring
Reform of the social security and health systems
Improvement in the use of public resources
Strengthen the tax system’s effectiveness
2008 Budget Law approved by the Parliament reaffirms the
Government’s commitments and objectives included in the SGP
8
Public finances in the medium-term: SGP 2007-2011
Government committed to reduce budget deficit over the coming years
Deficit reduction based on structural measures rather than on one-off and
temporary measures
Between 2005 and 2007 the deficit was reduced from 6.1% to 2.6% of GDP
In 2008 the deficit is expected to achieve 2.2% of GDP
The Stability and Growth ProgrammeThe Stability and Growth Programme
9
Public finances in the medium-term: SGP 2007-2011
The performance in 2007 allowed the Government to attain the Stability and
Growth Pact’s reference value, one year ahead of schedule
“Portugal is to be praised for bringing its deficit to 3%, and possibly less, in 2007,
one year before the deadline. The recent pension reforms also significantly improve
the long-term outlook of its finances. It is encouraged to pursue its budgetary
strategy to help put the Portuguese economy back on a sustainable and dynamic
catching-up path.” – Recommendation from the EC on February 13th, 2008
The Stability and Growth ProgrammeThe Stability and Growth Programme
10
Portuguese economy on recovery pathR
eal
GD
P g
row
thM
on
thly
Co
inc
iden
t In
dic
ato
r
Eco
no
mic
Sen
tim
ent
Ind
icat
or
Source: Bank of Portugal
Source: National Statistics Office and Budgetary Guidelines Report (May, 2008)
Source: Bank of Portugal
Har
mo
niz
ed
CP
I
Source: Bank of Portugal
3,9
2,0
0,8
-0,8
1,5
0,91,3
1,81,5
2,02,2 2,2
-2
-1
0
1
2
3
4
5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(% c
hang
e)
Forecast
0.0
0.5
1.0
1.5
2.0
2.5
3.0
I II III IV I II III IV I
2006 2007 2008
0.00.5
1.01.5
2.02.5
3.03.5
4.0
I II III IV I II III IV I
2006 2007 2008
(%, Y
oY c
hang
e) Portugal
Euro area
84
86
88
90
9294
96
98
100
102
104
I II III IV I II III IV I
2006 2007 2008
11
Structural reforms…Structural reforms…
Measures to reduce public expenditure
• Reorganisation of the State’s local services (PRACE)
• Development of shared services
• Keeping staff costs growth under strict control
• New rules and guidelines to improve human resources management
Reforming the Public Administration
Promotion of the sustainability of the social security system, through
fundamental changes on the applicable rules, in line with major
demographic trends
12
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
• Efficient allocation of public real-estate
Structural reforms…Structural reforms…
Measures to reduce public expenditure
13
… underpinning fiscal consolidation … underpinning fiscal consolidation
Some measures already implemented to increase tax revenue
Fight against tax fraud and evasion and abusive tax planning
• Use of information as a lever in the fight against fraud and tax evasion shall continue to be stimulated
• The dissuasive effect resultant from the new debt recovery instruments and mechanisms, and the significant worsening of sanctions for non-compliance with tax obligations, in addition to the revenue achieved, has been the greatest benefit of these actions
Reduction of tax benefits and exemptions
14
At least 80% of the revenues will be used to reduce the outstanding government debt, thus reducing the borrowing needs
Expected privatisation revenues
2007 2008 2009 2010Privatisation revenues% GDP 0.5 0.4 0.3 0.2
Supported by an important privatisation programmeSupported by an important privatisation programme
2011
0.1
Source: SGP (December, 2007)
15
General government gross debt - 2007
Portuguese fiscal foundationsPortuguese fiscal foundations
Portugal has a lower debt burden than euro area average and better than “core” Europe and other rating peers
Source: Eurostat
0
20
40
60
80
100
120
ITA GRE BEL GER FRA POR AUS NETH SPA FIN IRE
(As
a %
of
GD
P)
Euro area average = 66.5%
16
CONTENTS:CONTENTS:
• Section 1: New issue summary
• Section 2: Portuguese Public Finance Reform Programme
Section 3: Debt management and funding
17
Aiming at building up a Portuguese benchmark yield curve
A market driven borrowing strategyA market driven borrowing strategy
• Size
• Tradability – Efficient and standard market conditions
The most important driving factor:
LiquidityLiquidity
A market oriented borrowing
strategy
A market oriented borrowing
strategy
Active debt management -
derivatives and buy-backs
Active debt management -
derivatives and buy-backs
Priority to the development of a government benchmark yield curve
Interest rate and refinancing risk management
• Predictability Predictability
• TransparencyTransparency
• AccountabilityAccountability
The main pillars:
18
OT launched through syndication…
Building up an international and diversified investor base
Benchmark size: € 3 billion
Allowing the benchmark OT to be traded in MTS Portugal with quoting obligations from start
…and increased through auctions up to € 6 billion
OT syndication process
PD are the only underwriters
PD committed to place bonds in high quality investors
IGCP is the active manager
E-book building
OT issuance processOT issuance process
Syndicate +1stauction
+2ndauction
+3rdauction
EU
R b
illi
on
1 bln
1 bln
1 bln
3 bln
Co-Leads
Joint-Leads
Full pot
Retention+
Co-lead pot
19
Participants in MEDIP/MTS Portugal
An efficient and liquid secondary marketAn efficient and liquid secondary market
ABN Amro Bank Banco Espírito SantoBanco Santander Central HispanoBarclays Bank PLCBayerische Hypo-und Vereinsbank, AGBNP Paribas Caixa - Banco de Investimento, S.A.CALYONCitigroup Global Markets Deutsche BankGoldman Sachs InternationalHSBC FranceINGLehman Brothers InternationalMorgan Stanley & Co InternationalSociété Générale
Dresdner BankFortis Bank
Bank of America Securities LimitedCCCAMCECACommerzbank AGCredit SuisseJP Morgan SecuritiesLandesbank B-WMitsubishi UFJ Securities Int. plcNatixisNomura InternationalWestLB
18 M
arke
t M
aker
s12
Mar
ket
Dea
lers
16 O
EV
T/
Prim
ary
16 O
EV
T/
Prim
ary
Dea
lers
Dea
lers
All OT listed in Lisbon on MEDIP/MTS Portugal
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
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
OT secondary market driven by MTS Portugal
20
10-year bid-offer spreads
An efficient and liquid secondary marketAn efficient and liquid secondary market(as of May 29, 2008)
5-year bid-offer spreads
30-year bid-offer spreads 15-year bid-offer spreads
Maximum B/O spreads of 25 ticks
0
5
10
15
20
25
30
35
40
Jun
06
Jul 0
6
Aug
06
Sep
06
Oct
06
Nov
06
Dec
06
Jan
07
Feb
07
Mar
07
Apr
07
May
07
Jun
07
Jul 0
7
Aug
07
Sep
07
Oct
07
Nov
07
Dec
07
Jan
08
Feb
08
Mar
08
Apr
08
May
08
Ticks
Maximum B/O spreads of 4 ticks
01020304050
60708090
100
Jun
06
Jul 0
6
Aug
06
Sep
06
Oct
06
Nov
06
Dec
06
Jan
07
Feb
07
Mar
07
Apr
07
May
07
Jun
07
Jul 0
7
Aug
07
Sep
07
Oct
07
Nov
07
Dec
07
Jan
08
Feb
08
Mar
08
Apr
08
May
08
Ticks
Maximum B/O spreads of 20 ticks
Maximum B/O spreads of 30 ticks
0102030405060708090
100
Jun
06
Jul 0
6
Aug
06
Sep
06
Oct
06
Nov
06
Dec
06
Jan
07
Feb
07
Mar
07
Apr
07
May
07
Jun
07
Jul 0
7
Aug
07
Sep
07
Oct
07
Nov
07
Dec
07
Jan
08
Feb
08
Mar
08
Apr
08
May
08
Ticks
Maximum B/O spreads of 10 ticks
Maximum B/O spreads of 12 ticks
Maximum B/O spreads of 40 ticks
Maximum B/O spreads of 5 ticks
05
10152025303540455055
Jun
06
Jul 0
6
Aug
06
Sep
06
Oct
06
Nov
06
Dec
06
Jan
07
Feb
07
Mar
07
Apr
07
May
07
Jun
07
Jul 0
7
Aug
07
Sep
07
Oct
07
Nov
07
Dec
07
Jan
08
Feb
08
Mar
08
Apr
08
May
08
Maximum B/O spreads of 7 ticks
Ticks
Maximum B/O spreads of 30 ticks
21
An efficient and liquid secondary marketAn efficient and liquid secondary market OT Daily average turnover in MTS Portugal and EuroMTS
OT Repo Market Daily Average Turnover
• MTSP OT daily average turnover in
2006 : € 446 million
2007 : € 627 million
January-May,23 2008: € 130 million
• A last resort repo window provided by
IGCP to all market makers in MTSP
Very liquid wholesale cash and repo segments
22
Highly internationalised and diversified OT marketHighly internationalised and diversified OT market
*Turnover with final investors reported by PD (excluding intra-PD trading) - 2007
Around 85% of the turnover* in the OT secondary market is generated by non-domestic investors
Other3%
Pension Fund2%
Insurance Company
3% Hedge Fund1%
Bank Customer
40%
Fund Manager40%
Central Bank Other Public
Entity11%
UK29%
Other countries
5%
Belgium4%
Germany9%
Portugal15%
France24%
Netherlands5%Italy
4%
Spain5%
23
Further information on the Portuguese economy can be obtained from:
Tel: +351 21 792 33 00Fax: +351 21 799 37 95E-mail:[email protected]
Budget Department
National Statistics Office
Banco de Portugal (Central bank)
Web site: igcp.ptReuters 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
www.dgo.pt
www.ine.pt
www.bportugal.pt
IGCP:
DISCLAIMERThe 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.