245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
ROMANIA
Development of local
government
securities market
Washington, Sovereign Debt
Management Forum, 2014
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
General Government Debt / GDP Q2 2014, %
Source: Ministry of Public Finance - Public Debt Bulletin - annex "Government Debt according
to EU Methodology”
General Government Debt / GDP, %
Source: Ministry of Public Finance
Note: Data based on outstanding debt at end of August 2014 according to national legislation
Romania’s debt-to-GDP ratio remains one of the lowest in the EU and
CEE regions
General government debt was 39,7% of GDP at end September 2014
and is forecasted to stay below 40% of GDP in the medium term
As of 30 Sept 2014, average remaining maturities of government
securities were:
Total public debt - 4.9 years
RON papers - 2.9 years
Eurobonds - 7.1 years
Romania’s Public Debt Remains Moderate Relative to GDP
Public Government Debt Service Projection, RON bn
Source: Eurostat – release 23 October 2014, Government Debt
2
14,6% 16,8% 19,0% 20,6% 20,7%
15,3%17,4%
18,3% 17,3% 19,0%29,9%
34,2%37,3% 37,9% 39,7%
2010 2011 2012 2013 sep..14
Domestic government debt (% of GDP) External government debt (% to GDP)
10,5%
23,1%
41,1%
38,5%
38,8%
44,2%
45,3%
78,3%
82,6%
87,0%
Estonia
Luxembourg
Latvia
Romania
Sweden
Chech Republic
Denmark
Slovenia
Austria
EU 28
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
3
By Interest Type By Currency
Source: Ministry of Public Finance
Note: Calculations based on national legislation
By Type of Initial Maturities, RON bn
Public Government Debt Profile as of September 2014
64,1 67,8
43,429,5
18,7
118,4
142,6
183,4
222,6235,2
2010 2011 2012 2013 sep..14
Short term Medium and long term
T-bills4,0%
Bonds40,2%
Eurobonds23,1%
Loans29,3%
Loans from surplus of State
Treasury account
3,4%
RON
42.6%
USD
9.4%
EUR
46.5% SDR
0.6% Other
0.9%
Under 1 year; 7,40%
1 to 5 years;
34,30%
Over 5 years;
58,30%
By Instrument
Public Government Debt By Initial Maturity
Fixed; 81,5%
Variable; 18,5%
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
Romanian Credit Has Strong Market Performance
5-year USD CDS Dynamics, bps
EMU Convergence Criterion – 10-year Bond Yields, % Bid Yields of Romanian EUR Eurobonds, %
Source: Bloomberg
Source: Bloomberg
Source: Eurostat
4,0
5,0
6,0
7,0
8,0
9,0
10,0
ian.10 iul.10 ian.11 iul.11 ian.12 iul.12 ian.13 iul.13 ian.14 iul.14
Romanian yields have shown resilience to the Russia-Ukraine conflict
Confirmation in 2014 by all three rating agencies of investment grade
status with stable outlook
Spread compression and improving international ratings underline the
the ongoing convergence of Romania towards EU countries
The historically low yield environment has allowed Romania to extend
its average debt duration at advantageous cost
Established credit curves out to 10 years in EUR and 30 years in USD
4
Time Period High:
9.05% (Jan 2010)
Time Period Low:
4.16% (Jul 2014)
50
150
250
350
450
550
650
750
Jan12 Apr12 Jul12 Oct12 Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14
Bulgaria Romania Hungary Latvia
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
Milestones for the Development of the Government Securities Market: Looking Back
5
2008 - First debt management strategy – explicit objective – developing the government securities
market
Starting with 2008 - Introduction of benchmark bonds (now 27 outstanding bonds across different
maturities – up to 12 years remaining maturity)
2009 - Implementation of the private pension system (pillar II and III) – developing the domestic
institutional investor base
2009 – Financial and economic crisis hit Romanian economy – the road from hell to heaven – from
2009 domestic funding policy based on short term T-bills issuance (edging up to Lombard rate of
14,25%) to the 2013-2014 liquid benchmark bonds of medium-long-term maturity 2011-2012
2010 – Building up a hard currency buffer in the treasury (to cover 4 months of gross funding needs)
– buying protection while preserving flexibility
2011-2012 - New regulation to support increased competitiveness among PDs – new set of appraisal
criteria focusing on PDs performance on the primary and secondary market (underwriting
commitment of 2% of the total volume of government securities in the primary market auction and
3% including the amounts acquired for clients, incentives: non-competitive auctions, favorable
treatment for bond issuances on the foreign markets)
2013 - Inclusion of Romanian benchmark bonds in international indices (JP Morgan and Barclays)
followed by sharp increase in the non-residents appetite to our domestic government bond market
(May 2013 – non-resident increased to 25% of the total outstanding volume of government securities)
May 2014 – regaining the full investment grade status from all rating agencies (the last in line – S&P’s
upgrade)
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
6
Total outstanding local (end of September 2014) government
securities Ron 112.2 bn (equiv. EUR 24.9bn) - o/w: RON 96.97
bn and RON 15.22 bn (EUR).
Since 2011 yield curve moved gradually downwardly while the
maturities were extended supported by the complementarity of
the non-residents’ demand on the long-end of the curve
As of September 2014 the domestic debt market continued
being dominated by commercial banks that held 53.1 % in total
outstanding government securities; next in importance were the
non-residents with holdings that amounted to 19.4%, while
pension funds` holdings reached 10.2%.
Distribution by investor type (end of September 2014) Government securities issued between
January 1 – October 31, 2014 (initial maturity)
Commercial banks
53,10%
Pension funds10,20%
Others36,70%
6M T-bills10%
1Y T-bills21%
3 Y bonds10%4 Y bonds
3%5 Y bonds18%
7 Y bonds3%
10 Y bonds33%
15 Y bonds2%
Macroeconomic fundamentals supported rapid market developments and a smooth implementation of
the debt management strategy
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
Macroeconomic fundamentals supported rapid market developments and a smooth implementation
of the debt management strategy
7
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
23.114,3320.685,23 20.494,31
15.292,41 14.679,4712.387,40 11.849,80 10.738,21
19.684,78
10.215,90
0
5000
10000
15000
20000
25000
mln.
T-bills in mn RON Benchmark bonds in mn RON Benchmark bonds in mn EUR
Most tradable government securities in the last 6 months
JPM Index
8
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
Setting basis for a liquid, transparent, secure and efficient debt market through:
Enhancing the primary auction system developed by NBR (electronic transfer of the bids) – in place starting with March 1st, 2014; ;
Establish electronic trading platform (ETP)* – additional benefits for government securities - price discovery, monitoring and compliance by PDs with price quoting obligation for the selected bonds => enhance market liquidity;
Primary dealer agreement and PD Code – consolidate provisions governing the PD status in one single contractual arrangement (duties, responsibilities and privileges regarding the primary and secondary government securities market);
Liability management operations and a more active cash management* (buy backs, bond exchanges, repos) in order to manage the refinancing risk, repurchase of low and illiquid issuances distorting the yield curve and build greater liquidity for new bonds (on-the-run) – legal and operational framework as well as technical infrastructure, envisaged for 2015;
Creating the framework for financial derivatives (IRS and CCY swaps) for hedging purposes
Moving to an active cash management (short-term T-bills and reverse repo) while fine tuning the forecasting function;
Gradual lowering of the face value of the bonds in order to reach out a more diversified investor base (retail investors).
Milestones for the Development of the Government Securities Market: Looking Forward
9
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
Debt Management Strategy 2014 - 2016
Debt Management Targets
Parameters(1) Levels as of September 2014
Levels as of Dec 31, 2013
Indicative targeted min / max ranges (2014- 2016)
Share of domestic currency debt, % of total 40.6 39.8 35 – 50
Share of EUR debt out of total foreign-currency denominated debt, % 80.9 83.0 75 – 90
Debt maturing in one year, % of total 18.0 19.0 10 – 20
Local currency debt maturing in one year, % of total 24.0 33.0 25 – 35
ATM for total debt, years 4.9 4.4 4.5 – 6.5
ATM for local currency debt, years 3.0 2.7 2.5 – 4.5
Debt re-fixing in one year, % of total 25.0 26.0 20 – 30
Local currency debt re-fixing in one year, % of total 24.0 31.0 25 – 35
ATR for total debt, years 4.9 4.3 4 – 6
ATR for local currency debt, years 3.0 2.7 2.5 – 4.5
Currency Risk
Refinancing Risk
Interest Rate Risk
Source: Ministry of Public Finance. (1) Exclusive of loans of the State Treasury related to the General Current Account
Strategic Guidelines During 2014-2016
Favoring a net financing in local currency to develop the domestic debt market and mitigate foreign currency exposure
Pursuing a smooth redemption profile
Mitigating refinancing risk by maintenance of a foreign currency buffer
Controlling the exposure to interest rate risk
Maintaining presence in the euro and access to the US dollar market or to other foreign currency markets on an opportunistic basis
Selecting the longest possible maturities, considering also extension costs
Gradually reducing the issuance of domestic government securities in EUR
Financing of the foreign currency debt will be mainly in EUR
Continuation of the partnership with the IFIs
10
245-186-190
13-13-13
0-43-127
252-209-22
206-17-38
028-099-183
254-235-153
217-217-217
0-153-255
166-166-166
247-250-245
11
Ministry of Public Finance Department of Treasury and Public Debt
Stefan Nanu – General Director, [email protected]