FINANCING THE BUDGET AND THE CENTRAL GOVERNMENT DEBT IN 2018 19.12.2017
MAIN TOPICS 1. FINANCING OF THE CENTRAL GOVERNMENT IN 2017 2. MAIN CHARACTERISTICS OF THE FINANCING PLAN FOR 2018
FINANCING IN 2017 1. The main objectives of debt management have been met (lower debt level, development of the retail debt program) 2. Ample demand for domestic government bonds, financing target met at lower yields (even negative yields of T-bills) 3. Higher sale of retail securities covered extra net financing need due to EU prefinancing, total net financing need from the domestic market 4. The share of FX debt decreases from 25 percent to 22 percent in 2017 5. Credit Rating Agencies: S&P and Fitch changed Hungary s outlook to positive, better ratings are indicated by market yields (spreads) 6. Debt portfolio improved in the last years, optimal yield-cost structure reached
SOMEWHAT HIGHER GOVERNMENT BOND ISSUANCE THAN PLANNED Total accepted amount 1 800 Non-competitive phase 318 Bid-cover ratio: more than three-fold Accepted amount 1 482 Bids 4 081 Offered amount 1 245 Source: ÁKK Zrt. 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 HUF billion Largest demand for the 5-year bonds, which increased the average time to maturity of the debt portfolio
WHILE YIELDS HAVE BEEN DECREASING FURTHER 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% Source: ÁKK Zrt. CB base rate 3-month yield 5-year yield Largely decreasing long term yields, short term yields well below the CB base rate (turned to negative)
SUBSTANTIAL DECREASE IN YIELDS IN COMPARISON WITH PEERS 5% 5-years benchmark yields 4% 3% 2% 1% 0% Hungary Romania Poland Czech Republic -1% Source: ÁKK Zrt. Due to the decrease in yields the Hungarian yield curve has been below the Polish and Romanian yield curve throughout the year and almost equal to Czech yields at end-november 2017
HUF billion Points ALTOGETHER UNCHANGED NON-RESIDENT HOLDINGS 3 700 3 600 3 500 740 720 700 3 400 3 300 3 200 3 100 3 000 680 660 640 620 600 Source: ÁKK Zrt. Non-resident holdings MAX Composite Index Non-resident holdings decreased at the beginning and at the end of 2017
DECREASING SHARE OF FX DEBT, INCREASING DOMESTIC FINANCING Breakdown of government debt by investors 100% 80% 60% 40% 20% 0% 55% 56% 57% 55% 53% 52% 52% 50% 49% 44% 40% 31% 34% 39% 44% 51% 58% 63% 45% 44% 43% 45% 47% 48% 48% 50% 51% 56% 60% 69% 66% 61% 56% 49% 42% 37% Residents Non-residents Source: ÁKK Zrt., MNB, Keler Share of FX debt 60% 50% 40% 30% 20% 10% 0% 35% 30% 25% 24% 26% 28% 28% 29% 37% 45% 44% 49% 40% 40% 38% 31% 25% 22% Source: ÁKK Zrt.
INTERNATIONAL FX BOND ISSUANCE IN 2017 CNY 1 billion Panda bond issuance in July (EUR 130 million) 3-year tenor, 4.85% coupon (0.68% after CCYS) First Hungarian issuance in this market. Only Hungary has issued Government Bonds in both the Dim Sum and the Panda markets. EUR 1 billion international FX bond issuance in October via bond exchange (the government debt did not increase, accrual-based [ESA] interest expenditures decreased significantly, increased duration, 6 times oversubscription) USD Bond buy backs at market yields with no premium
HUF billion CONTINUED REDUCTION OF REFINANCING RISK FOR THE COMING YEARS, FURTHER IMPROVING DEBT STRUCTURE 1 800 1 600 1 400 310 1 200 1 000 800 600 400 200 0 678 597 886 638 120 864 679 91 434 401 378 140 2012 2013 2014 2015 2016 2017 Buy-backs Switch auctions FX Bond Exchange Source: ÁKK Zrt. Successful FX bond exchange (amounted to EUR 1 billion) in 2017
HUF billion THE OUTSTANDING AMOUNT OF RETAIL HUF SECURITIES INCREASED SIGNIFICANTLY 8 000 7 000 6,668 6 000 5 000 4 000 3 000 2 000 1 000 0 3,517 5,068 Source: ÁKK Zrt. Ratail bills Retail bonds HUF 1,600 billion net sale by the end of November. The highest annual net sale ever! Net retail bond issuance amounted to 75% percent of net retail sales, which increased the average time to maturity of the retail portfolio.
MAIN CHARACTERISTICS OF THE FINANCING PLAN FOR 2018 MAIN CHARACTERISTICS OF THE FINANCING PLAN FOR 2018
THE OBJECTIVES OF DEBT MANAGEMENT IN 2018 To maintain low cost financing, taking account of risks in the long run 3 main objectives of debt management: 1. Decreasing debt ratio 2. High domestic financing (retail) 3. Lower share of FX debt Principles applied to achieve the above objectives: Increase the role of domestic financing and the retail program Lower share of FX debt within the total debt ensured by refinancing EUR 2.3 billion FX redemptions partly from the domestic market and partly by FX bond issuance Increasing duration Bond transactions used in 2017 are available for 2018 (Panda bond, FX Bond exchange)
PLANNED VOLUME AND STRUCTURE OF GROSS FINANCING NEED HUF billion Net financing requirement 1,361 EUR billion Redemption of HUF government bonds 1,121 Planned bond buy-backs 200 Planned buy-backs via switch auctions 208 Redemption of retail securities 4,117 Redemption of discount T-bills (OECD method) 1,052 Redemption of international FX bonds 483 1.6 Redemption of government FX bond (P MÁP) 84 0.3 Redemption of FX loans 132 0.4 Total redemptions 7,397 Gross financing requirement 8,758 EUR 2.3 billion FX debt redemption in 2018, smaller than in 2017 (without bond exchange)
HUF billion PLANNED VOLUME AND STRUCTURE OF GROSS ISSUANCE IN 2018 10 000 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 Total: 8,840 62 59 309 155 1 155 4,395 200 2 200 FX loans P MAP and Residency Bond International FX bonds HUF loans Discount T-bills Retail securities Switch auction Government bond 0 Source: ÁKK Zrt. 2018 plan HUF bond and retail issuances are the main source of funds. International FX issuance is expected to a total amount EUR 1 billion.
HUF billion PLANNED VOLUME AND STRUCTURE OF NET ISSUANCE IN 2018 2 000 Total: 1,443 1 500 155 103 FX loans P MAP and Residency Bond 1 000 583 International FX bonds HUF loans 500 871 Discount T-bills Retail securities 0-174 -73-22 Government bond (with switch and buy-back) -500 Source: ÁKK Zrt. 2018 plan Positive net HUF issuance, negative net FX issuance. HUF bond and retail issuances are the main source of funds.
FINANCING PLAN FOR 2018 - SUMMARY 1. Low redemptions of HUF bonds due to the buy-backs and switches in previous years 2. Low (EUR 2.3 billion) FX debt redemption 3. The role of HUF bonds and retail securities is the most important 4. EUR 1 billion international bond issuance (may be RMB, EUR, JPY, USD) 5. Decreasing share of FX debt to 20%
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