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Fixed Income Research
Issuer Guide 2016
Eurozone – EU(19)
We would like you to pay attention to the special references on the last pages of this study.
Issuer Guide 2016 – Eurozone (EU19)
Introduction
4
The eurozone as part of the EU – an introduction
4
Multi-annual financial framework – the EU’s 2014 budget
7
Market distortion by the ECB
10
Objectives and structure of the study
15
Eurozone
Eurozone (EU19)
17
Eurozone limited to 19 member states for time being
Country Profiles
17
24
Germany
Debt reduction coupled with steady economy
24
France
A sleeping giant is shaken by terror
29
Italy
Economic and political activity lacking momentum
34
Spain
Over 300 days without a government
39
Netherlands
Natural gas capped further
44
Belgium
Key reforms despite resistance
49
Austria
Austria presses ahead with Heta wind-up
54
Finland
The struggle to comply with the Maastricht criteria
59
Ireland
From model pupil to record GDP growth
64
Greece
Still the eurozone's problem child
69
Portugal
Left-wing government intends to dial back reforms
74
Slovakia
Volkswagen builds logistics centre in Slovakia
79
Luxembourg
Financial sector continues to dominate
82
Slovenia
Long-term turnaround achieved
85
Lithuania
Ever closer links with the West
88
Latvia
Economy on course, in spite of Russia
91
Estonia
Exemplary budget situation and relationship with Russia
94
Cyprus
Caught in the Greek maelstrom?
97
Malta
One thousandth of the eurozone
100
Appendix
103
Rating Overview
103
Contacts
104
NORD/LB Fixed Income Research
Page 3 of 109
Issuer Guide 2016 – Eurozone (EU19)
Introduction
The eurozone as part of the EU – an introduction
The current EU is based on
the 1952 European Coal and
Steel Community
The history of the European Union, which has consisted of 28 countries since the accession of Croatia on 1 July 2013, began on 23 July 1952 with the association of six countries in the European Coal and Steel Community (ECSC; Montanunion). It was based on
the idea by the French Foreign Minister of the time, Robert Schumann, who – in the
interests of peace – wanted to put the coal and steel production, which is so important
for the production of arms, of the two longstanding enemies Germany and France, under
the umbrella of a single authority. On 25 March 1957, the same nations (Belgium, Germany, France, Italy, Luxembourg and the Netherlands) established the European Economic Community (EEC) and the European Atomic Energy Community (Euratom). The
latter helps the peaceful use of and research into nuclear energy. The establishment of
the Common Agricultural Policy (CAP) followed in 1962 and the introduction of the European Customs Union in 1968. Denmark, the UK and Ireland (northern extension) finally
joined the EEC in 1973. The first elections for the European Parliament took place in
1979, which have been repeated every five years since then. As part of the southern
extension, Greece joined in 1981 following the reintroduction of democracy and it was
followed five years later in 1986 by Spain and Portugal, which had been subject to dictatorial regimes until the 1970s. In 1985, the EU members signed the Schengen Agreement, which was named after a small village in Luxembourg and provided for the abolition of stationary border controls between EU countries. In 1995, Austria, which could
give up its commitment to neutrality following the end of the Cold War, as well as Finland
and Sweden, became members of the EU.
1992: Maastricht Treaty
as a basis for EMU
With effect from 1 November 1993, the association of European states was changed into
the European Union (EU) on the basis of the Maastricht Treaty (7 February 1992). The
name change was also associated with an extended objective, namely the creation of an
“area without internal borders”. The member states agreed to establish a single economic and monetary union, which later led to the introduction of the euro. An extensive eastern extension followed on 1 May 2004, when Estonia, Latvia, Lithuania, Poland, Slovakia, Slovenia, the Czech Republic and Hungary acceded, as did the two Mediterranean islands Malta and Cyprus. Bulgaria and Romania joined on 1 January 2007 and six
years later, Croatia became part of the EU, as the second country from the former Yugoslavia.
Current accession
candidates
Turkey has been a candidate for potential EU accession since 2005, although negotiations have been proceeding rather sluggishly especially since the latest anti-democratic
tendencies under Erdogan and the continuing failure to fulfil the constitutional criteria for
inclusion. Iceland applied for EU membership in July 2009 but cancelled its application in
March 2015. Albania, Serbia, Montenegro, Macedonia and Bosnia-Herzegovina (15
February 2016) have also been awarded candidate status.
European Economic and
Monetary Union (EMU)
The introduction of a single currency for European Union member states went through a
three-stage process: in the first stage, the priority was the completion of the European
internal market. Economic and financial policy as well as monetary and exchange policy
were also to be coordinated with the aim of achieving financial stability. In the second
stage (1 January 1994 to 31 December 1998), the European Monetary Institute (EMI)
was first established and operated as a predecessor to the European Central Bank,
which was installed in Frankfurt on 1 June 1998. Once the third stage started, monetary
policy was transferred to the European System of Central Banks (ESCB), which comprised all the member states’ central banks in addition to the ECB.
Lithuania became the nineteenth eurozone member on
1 January 2015
As the last expansion of the eurozone for the time being, Lithuania became the nineteenth member on 1 January 2015. It is unlikely that further countries, e.g. Poland, will
join in the next few years since the convergence criteria have not been met. The countries of the eurozone differ considerably in terms of their economic performance. Accordingly, more than half the total gross domestic product (GDP) is generated in France and
Germany. A single currency area is not only politically and economically significant. One
of the world’s largest bond markets (EUR 8,500bn) was produced as a result of countries relinquishing their national currencies.
NORD/LB Fixed Income Research
Page 4 of 109
Issuer Guide 2016 – Eurozone (EU19)
Eurozone (19 countries) – share of gross domestic product (2015)
Netherlands
6,5%
Spain
10,4%
Belgium
3,9% Austria
3,2%
Finland
2,0%
Ireland
2,1%
Italy
15,7%
Greece
1,7%
Portugal
1,7%
France
21,0%
Germany
29,1%
Others
2,6%
Lithuania
0,4%
Latvia
0,2%
Estonia
0,2%
Slovenia
0,4%
Luxembourg
0,5%
Cyprus
0,2%
Malta
0,1%
Slovakia
0,7%
Source: Eurostat, NORD/LB Fixed Income Research
Ireland has turned the corner
While Ireland, which was heavily implicated in the financial crisis, had to be bailed out
under the programme established to rescue European banks and was consequently one
of the programme countries under the supervision of the Troika, it has now turned the
corner in 2015. Last year, it posted economic growth of 26.3% and, in this respect, was
not exceeded by any other country within the eurozone. However, the burdens resulting
from the measures to rescue the country’s banks made themselves felt in the Irish
budget, which is continuing to creak under a heavy debt burden. For this reason, Ireland
was unable to fulfil either of the two Maastricht criteria in 2014. In 2015, on the other
hand, the negative budget balance again fell to -2.3% of GDP, while total debt is also
declining rapidly (2015: 93.8%). The same is true of Spain, which has been in recession
since 2009 and in 2015 posted positive economic growth of 3.2% for the second time in
succession. However, in spite of positive developments on the employment market, the
country has so far not been able to rid itself of its high unemployment rate, which still
stands at around 22%. The measures to rescue the banks have not left the budget unscathed either; its debt has virtually doubled since then and has now reached almost the
level of gross domestic product (99.2%). However, Spain and Ireland are not alone here,
since, with few exceptions, the sovereign debt of EU member countries has expanded to
over 60% of GDP. Greece is by far the worst offender (176.9%), but Italy’s (132.7%) and
Portugal’s (129.0%) debts have also increased to alarming heights. Italy can still claim
that large amounts of its own sovereign bonds are held by domestic creditors. In addition
to the countries mentioned, the debt ratio in Belgium and Cyprus has exceeded 100%
and France is also coming perilously close to this threshold.
Baltic states are model pupils In addition to Luxembourg, the Baltic states are model pupils in matters of financial probity, as they all fulfil both Maastricht criteria. This fact is also due to the efforts made to
in terms of sound public
financial management
fulfil the criteria for accession to the eurozone, which were ultimately successful. This is
even more remarkable given that the three Baltic countries suffered particularly severely
from the consequences of the financial crisis; in 2009, GDP fell by over 14% in each
case. The solid budget situation in the Baltics was therefore accompanied by painful cuts
to social services, in particular, and to education. This was an event, which led to considerable resistance among the population to the rescue packages being extended;
ultimately per capita GDP in the Baltics is approximately one third below that of Greece,
which is why there is limited enthusiasm for assuming responsibility for the debts of a
more prosperous country. Deflation is another risk that is virulent throughout the entire
eurozone. Despite the ECB’s bond purchase programme, it continues to have repercussions since HICP inflation was 0.4% in September, compared with the same month last
year. The outcome of the ECB Governing Council meeting held on 20 October 2016
nevertheless confirmed that the bond purchase programme will be continued if necessary until inflation increases to the target level.
NORD/LB Fixed Income Research
Page 5 of 109
Issuer Guide 2016 – Eurozone (EU19)
ECB Executive Board
member demands a Ministry
of Finance for Europe
To be able to coordinate economic and financial policy within the eurozone more effectively, the ECB Executive Board member Benoît Cœuré argued in favour of the creation
of a Ministry of Finance for Europe at a conference in August 2015. Jens Weidmann and
Francois Villeroy de Galhau, the central bank chairmen for France and Germany, endorsed this demand in February of this year. Even if he himself has not stated it, ECB
President Mario Draghi also seems to be an advocate of this demand. The idea behind
the creation of such an institution would be a continuation of the European Semester,
which involves preventive measures in the event of an imminent breach of the Maastricht criteria. The financial policy of the individual member states is also to be coordinated more effectively. Even the staff in the Federal Ministry of Finance seem open to the
idea and are working on a concept which envisages a separate budget for the new ministry to be created. However, an amendment to the constitution would be required for the
establishment of a Ministry of Finance under the supervision of the European Parliament; depending on the structure involved, this would involve far-reaching transfers of
national sovereignty. This would then be a further step in the direction of a federal Europe. Even if EU member states have so far shown little interest in such transfers of
powers, a European Ministry of Finance is no longer purely a utopian idea. In particular,
the French, for instance, are far more open to a paradigm shift of this kind after their
experiences in the Greek crisis, when the French vote had little weight.
EU19 key figures (2015)
GDP
(EURbn)
Countries
GDP
growth
Population
size
National
debt
Budget
balance
HICP
inflation
Unemployment rate
(%)
(m)
(% of GDP)
(% of GDP)
(%)
(%)
eurozone
10,400.2
1.7
338.5
90.7
-2.1
0.0
10.9
Germany
3,025.9
1.7
81.2
71.2
0.7
0.1
4.6
France
2,183.6
1.3
66.4
95.8
-3.5
0.1
10.4
Italy
1,636.4
0.8
60.8
132.7
-2.6
0.1
11.9
Spain
1,081.2
3.2
46.4
99.2
-5.1
-0.6
22.1
Netherlands
678.6
2.0
16.9
65.1
-1.8
0.2
6.9
Belgium
409.4
1.4
11.3
106.0
-2.6
0.6
8.5
Austria
337.3
0.9
8.6
86.2
-1.2
0.8
5.7
Ireland
214.6
7.8
4.6
93.8
-2.3
0.0
9.4
Finland
207.2
0.5
5.5
63.1
-2.7
-0.2
9.4
Portugal
179.4
1.5
10.4
129.0
-4.4
0.5
12.6
Greece
176.0
-0.2
10.9
176.9
-7.2
-1.1
24.9
Slovakia
78.1
3.6
5.4
52.9
-3.0
-0.3
11.5
Luxembourg
52.1
4.8
0.6
21.4
1.2
0.1
6.4
Slovenia
38.5
2.9
2.1
83.2
-2.9
-0.8
9.0
Lithuania
37.1
1.6
2.9
42.7
-0.2
-0.7
9.1
Latvia
24.4
2.7
2.0
36.4
-1.3
0.2
9.9
Estonia
20.5
1.8
1.3
9.7
0.4
0.1
6.2
Cyprus
17.4
1.6
0.8
108.9
-1.0
-1.5
15.1
Malta
8.8
6.4
0.4
63.9
-1.5
1.2
5.4
Source: Eurostat, NORD/LB Fixed Income Research;
Note: the fields with a red background indicate that the relevant country has breached the Maastricht thresholds
NORD/LB Fixed Income Research
Page 6 of 109
Issuer Guide 2016 – Eurozone (EU19)
Introduction
Multi-annual financial framework – the EU’s 2014 budget
EU budget reduced for the
first time
With the 2014 financial year, the new cycle of the multi-annual EU financial framework
started for the period 2014-2020. Starting on the basis of a proposal by the European
Commission, the EU Council, i.e. the various member states, and subsequently the EU
Parliament must approve the budget. In the budget, upper limits are specified for the
different budget items. This ensures that spending does not exceed revenue. According
to figures from the German Ministry of Finance, the overall budget for the period from
2014 to 2020 comprises payment obligations of EUR 960bn, which represents approximately 1.0% of GNI in the EU in relation to expected economic growth. In view of the
difficult budget situation in some member states, the EU agreed in 2014 to cut the budget compared with the previous year for the first time in its history (by around -6%). The
budget plan includes funds for payments of EUR 135.5bn, which are divided between the
following six items:
1a. Research and technology
(competitiveness for growth and employment)
1b. Structural policy
(economic, social and territorial cohesion)
2. Agricultural policy
(sustainable growth, natural resources)
3. Home affairs
(security and EU citizenship)
4. Foreign policy
(Europe as global player)
5. Administration
Agricultural policy is the
biggest item in the budget
At EUR 56.5bn, the highest amount in the 2014 budget plan is once again specified for
agricultural policy. It represents a 41.7% share of the overall budget. The second largest
item is the fund for regional structural measures, which amounts to EUR 50.95bn. Next,
but with a substantial gap, is the fund for research and technology at a volume of EUR
11.4bn (8.4%). For administration, EUR 8.40bn are planned and foreign affairs are estimated to result in expenses of a maximum of EUR 6.19bn. The budget item for home
affairs, which encompasses monitoring borders and the management of migration, is
stated as EUR 1.68bn. The remainder of the budget is earmarked for settlements and
the category of other.
Current multi-annual
financial framework
focuses more on the future
In the comparison of the multi-annual financial framework for the current period (2014 to
2020) with the previous period, a new focus on research and development as well as the
gradual reduction of agricultural subsidies is evident. Spending on research is to increase by 37.3% compared with the period from 2007 to 2013 whereas the fund for agricultural subsidies is to be reduced by 11.3%. The fund for cohesion faces a cut of 8.4%.
Conversely, measures to protect borders will receive 26.8% more in funds.
In 2016, revenue amounted
to approx. EUR 143bn
Income mainly consists (71.9%) of payments from member states, the amount of which
depends on the amount of each country’s GNI. No fixed amount is specified for this particular budget item. Payments from member states are based on the difference between
expenses and other income, which ensures that income and expenses are always balanced. For the 2016 financial year, an amount of approximately EUR 143.9bn is anticipated, which is divided among the member states according to each country’s GDP. The
second highest source of income is VAT (EUR 18.8bn), followed by traditional own resources such as import tax and the sugar levy in respect of which an inflow totalling EUR
18.6bn is expected in 2016.
NORD/LB Fixed Income Research
Page 7 of 109
Issuer Guide 2016 – Eurozone (EU19)
Germany is the biggest
net payer
Germany’s role as the driving force in Europe is based on the country having the highest
population as well as the fact that it is by far the biggest net payer within the European
Union. Germany’s net position on the assets side covers roughly a third of the combined
amount which net receivers receive in terms of inflows. A further supporting country,
although with a considerable gap, is France. Despite having approximately the same
population as the UK and Italy, France shoulders a significantly greater burden. The
financial burden in relation to GDP is even more substantial for the Netherlands, as illustrated by the chart below. Another curious fact is that Luxembourg, the country with the
highest per capita income in the EU, is listed as a net receiver in the statistics. There are
several reasons for this apparent contradiction: the high GDP per capita in the smallest
of the Benelux countries does not represent the actual per capita income of Luxembourg
residents, because a significant portion of GDP is generated by working commuters who
are resident in Germany and France. This phenomenon is also found in a similar form in
Bremen, which is one of Germany’s economic regions with the highest GDP per capita.
However, actual tax revenue is considerably lower because of the high number of commuters. Nevertheless, Luxembourg is one of the wealthiest EU member states. The
reason why Luxembourg is a net receiver is that some of the EU’s institutions are located
in the Grand Duchy of Luxembourg. Measured in relation to the country’s total economic
output, they make a material contribution.
2014 EU budget: net receiver vs net payer
(in EURm)
Source: Eurostat, NORD/LB Fixed Income Research
2014 EU budget: net receiver vs net payer
(in % of GDP)
Source: Eurostat, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 8 of 109
Issuer Guide 2016 – Eurozone (EU19)
Receiver vs payer
In very simplified terms, the division of net receivers and net payers in the EU reflects
Europe’s recent history. In addition to the crisis-stricken countries of Portugal, Ireland,
Spain and Greece as well as the two islands of Cyprus and Malta, receiver countries
exclusively include former eastern bloc countries which are still in the phase of catching
up economically since the fall of the wall. Among the net payers are the founding countries of the European Community and the affluent countries in northern Europe as well as
Austria, which committed to being neutral after the Second World War and therefore only
joined the European Union at a later date. Among the net receivers, Poland’s situation is
conspicuous. The country receives by far the highest amount of funds from Brussels.
This is due to the fact that among the net receivers Poland is the country with the highest
population (38.0m inhabitants) and unlike Romania, the country’s administrative structure for absorbing EU funds is more efficient. Along with Romania, Bulgaria is one of the
member states which has not succeeded in drawing the funds assigned to it in full, because they do not have sufficient investment projects and/or the relevant country’s own
contribution as required by Brussels exceeds the countries’ own financial resources.
Looks can be deceiving
Although Germany makes by far the biggest contribution to the EU’s budget in terms of
absolute figures, the analysis in relation to GDP reveals a different picture. In this respect, the Netherlands shoulder the biggest burden on balance. Sweden is on a par with
Germany. Bulgaria and Lithuania bring up the rear. Bulgaria has the lowest per capita
income in the EU (with Croatia in a better position). At the same time, Lithuania is on a
par with Portugal, Slovakia and its Baltic neighbours based on this welfare indicator.
NORD/LB Fixed Income Research
Page 9 of 109
Issuer Guide 2016 – Eurozone (EU19)
Introduction
Market distortion by the ECB
European government
bonds offer diversity
in terms of risk and maturity
The market for government bonds represents that largest segment in the European bond
market. The 19 countries in the eurozone currently have an outstanding bond volume of
more than EUR 5,800bn. Investors have a choice of government securities with a huge
range of credit ratings and maturities. The maturities segment extends from (very)
short-term money-market paper through to long-term capital market bonds with maturities of almost 100 years. In recent months, for example, Austria and Spain attracted
attention through the successful placement of such long-term bonds (Austria: 70 years,
Spain: 50 years). Apart from these extremes, an investment idea can be generated at
almost every point on the yield curve.
Does the rating reflect the
risk taken?
In addition, the European sovereign debt crisis has led to a significant differentiation in
terms of ratings since 2009. This enables investors to also take positions in investments
with (substantially) varying credit ratings in the (European) government bond segment
within the scope of their investment strategy. While the Federal Republic of Germany
retains the best possible rating from all three major rating agencies, other countries were
faced with downgrades, in some cases substantial. For example, we refer to Greece and
Italy in this respect.
Market for government bonds The high level of market liquidity is a further argument for investors. While some
remains highly liquid
sub-markets came to a virtual standstill in the wake of the financial crisis, trading in government bonds was spared this turmoil to a very large extent. In comparison, for example, the interbank money market was noticeably disrupted by the institutions' mutual
crises of confidence in each other and the market for covered bonds was affected by the
limited market-making. Fair pricing of the bonds, corresponding to the credit rating of the
respective issuer, should be assumed, mainly resulting from the high turnover and the
market liquidity that this represents. It should nonetheless be noted that, in the current
environment, even this market is subject to massive distortion.
Criticism of the PSPP – Risk
for efforts at reform
The European Central Bank (ECB) affects not only the market for government bonds
through its extensive purchasing of securities. Its unconventional measures are also
distorting bond market pricing to a considerable extent. Since March 2015, the ECB has
backed its expansive monetary policy by purchasing government bonds. The decision by
the ECB Governing Council was preceded by a vehement debate on whether this course
of action constitutes a form of (indirect) state financing, which the Eurosystem is not
permitted to do in principle. Strong resistance came especially from the Bundesbank. To
all intents and purposes it sees a connection between the price effects and therefore the
yield effects of the securities purchasing on the one hand, and the refinancing of issuers
on the other. In addition, continued the Bundesbank's criticism, the (artificially) favourable refinancing conditions, a direct consequence of central bank policy, are undermining
the efforts at reform in each of the eurozone countries. These efforts, it added, are nevertheless essential in order to ensure that national debt can be financed sustainably over
the long term.
Expansion of the APP in 2016 Regardless of this criticism, the ECB has been buying securities in the amount of EUR
60bn since March 2015. This amount was initially used for acquiring ABS paper (ABSPP), covered bonds (CBPP3) and public-sector issues (PSPP), of which government
bonds make up by far the biggest part, followed by supranationals. Turnover exceeding
EUR 1,134.2bn was accounted for by government bonds, regional bonds, securities from
quasi-government issuers and supranationals by the end of October. In April 2016, the
monthly purchase total was raised to EUR 80bn and, at the start of the second quarter of
2016, the purchases were extended to another asset class: under the CSPP (Corporate
Sector Purchase Programme), the central bank now also acquires corporate bonds. The
expansion of the monthly purchase volume to EUR 80bn on 1 April 2016 has amplified
the above-mentioned price distortions. Due to this additional demand on the market, the
prices of the relevant bonds will be pushed up and, inversely, the yields will be pushed
down.
NORD/LB Fixed Income Research
Page 10 of 109
Issuer Guide 2016 – Eurozone (EU19)
The ECB intends to pursue this change. The central bank's argumentation is that lower
refinancing costs are an incentive for investment and consequently promote growth in
the eurozone. This growth is in turn the basic requirement for the still very low inflation
rates returning in the direction of the ECB's target of "below but near 2%". Following this
line of argument, the ECB is thus acting strictly in accordance with its mandate.
Inflation is to be boosted
Weekly purchase volume (EURbn)
Distribution by country as at end of October (EURbn)
280
9
950
7
900
5
850
04.11.16
160
28.10.16
1000
21.10.16
180
11
14.10.16
1050
07.10.16
13
30.09.16
1100
23.09.16
15
16.09.16
1150
09.09.16
17
02.09.16
1200
26.08.16
19
260
240
220
EURbn
200
140
120
100
80
60
40
20
0
Weekly purchases
Total volume (rhs)
Source: Bloomberg, NORD/LB Fixed Income Research
Source: Bloomberg, NORD/LB Fixed Income Research
Overall distribution of PSPP purchases as at month-end (EURbn)
Adjusted distri1
bution key
Purchases
(EURm)
Expected purchases
2
(EURm)
Difference
(EURm)
Average residual maturity
(years)
Market average
3
(years)
Difference
(years)
DE
26.3%
273,087
270,801
2,286
8.00
11.43
-3.4
FR
20.7%
216,699
214,479
2,220
7.80
10.38
-2.6
IT
18.0%
188,482
185,563
2,919
9.07
7.11
2.0
SNAT
0.0%
128,646
128,916
-270
7.23
8.96
-1.7
ES
12.9%
135,215
133,111
2,104
9.47
6.92
2.6
NE
5.9%
60,953
60,251
702
8.01
11.08
-3.1
BE
3.6%
37,598
37,263
335
10.07
12.45
-2.4
AT
2.9%
29,823
29,564
259
9.38
10.52
-1.1
PT
2.6%
22,862
25,393
-2,531
9.80
6.78
3.0
FI
1.8%
19,148
18,935
213
7.65
9.35
-1.7
IE
1.7%
16,935
17,288
-353
9.38
10.29
-0.9
SK
1.1%
7,709
10,245
-2,536
9.35
7.52
1.8
SI
0.5%
4,551
5,000
-449
8.56
8.95
-0.4
LU
0.3%
1,634
2,485
-851
5.66
6.86
-1.2
LV
0.4%
1,259
2,178
-919
7.32
6.67
0.6
LT
0.6%
2,088
3,490
-1,402
6.60
7.10
-0.5
MT
0.1%
653
835
-182
11.12
10.01
1.1
CY
0.2%
248
1,746
-1,498
5.01
5.93
-0.9
EE
0.3%
273,087
270,801
2,286
1.71
0.00
1.7
GR
0.0%
0
0
100.0%
1,147,655
-
Country
Total/ average
12.01
-
8.38
8.83
-0.4
1
Based on the ECB capital key, adjusted by including supras and excluding Greece.
Based on the adjusted distribution key.
Weighted average residual term to maturity of the bonds that are buyable for the PSPP.
Source: ECB, NORD/LB Fixed Income Research
2
3
NORD/LB Fixed Income Research
Page 11 of 109
Issuer Guide 2016 – Eurozone (EU19)
Forced willingness to accept At the same time, however, their policies are not free from side effects, which potential
risk fosters misallocations on investors in particular must take into account. Firstly, the absolute return is at historically
the capital market
low levels as a result of the expansive monetary policy. With regard to German federal
bonds, this now means that only negative yields can be obtained across large sections of
the yield curve. As a consequence of these zero and negative yields, investors must
increasingly switch to riskier asset classes in order to earn a defined target return. In
certain circumstances they may accept risks that they really did not want to incur. This
may lead to misallocation of capital, which ultimately results in bubbles forming in other
asset classes.
Differences in credit ratings
are concealed by the PSPP
Another risk that should not be underestimated lies in the lack of differentiation of the
risks associated with credit ratings and default. Since the euro was introduced, yield
spreads in the government bond segment of the eurozone countries have narrowed very
much and permanently. It was not until the European sovereign debt crisis came to general attention that there was a widening of spreads that corresponded to the different
fundamental conditions and the debt sustainability of each particular country. Since the
ECB intervened in the eurozone government bond segment, the yield differences have
also narrowed again quite noticeably. It is questionable, though, whether the current
spreads correspond to the actual differences in credit ratings. It could be pointed out, of
course, that the ECB bases its purchases on the ECB capital key of the respective country, as a result of which the distortions described above affect all the eurozone countries
equally. This argument, however, fails to recognise that the ECB purchases only act as a
catalyst in this context, with the spread effects being augmented by related purchases
made by other groups of investors.
The future of the APP
The question now arises whether the ECB – along the same lines as the US central
bank, the Fed – will succeed in exiting this policy. The Eurosystem intends to continue its
purchases at least until March 2017 and at all events until inflation rates and expectations have begun to recover on a sustainable basis. In any case, the central bank will not
stop its purchases abruptly: this has been signalled already by statements to this effect
made by high-ranking ECB representatives. Instead, we can expect tapering along the
same lines as the procedure adopted by the Fed, which would involve a gradual reduction in the monthly volumes purchased. Bearing this in mind, the ECB and/or the national
central banks could, under certain circumstances, run into a scarcity problem. The requirements applicable to securities to be purchased (including maturity, minimum yield,
ISIN limit) mean that, for some countries, the buyable material is gradually becoming
scarce. Accordingly, we can probably expect an adjustment of the purchase conditions at
year-end 2016. Initially, however, this will further exacerbate the problem of market distortion as described above.
NORD/LB Fixed Income Research
Page 12 of 109
Issuer Guide 2016 – Eurozone (EU19)
ECB purchase list for the PSPP
Issuer
Jurisdiction
ISINs already purchased
EIB
SNAT
54
EFSF
SNAT
32
ESM
SNAT
15
EU
SNAT
20
COE
SNAT
7
NIB
SNAT
1
EURAT
SNAT
-
KFW
DE
41
RENTEN
DE
19
NRWBK
DE
26
LBANK
DE
6
CADES
FR
18
RESFER
FR
14
UNEDIC
FR
17
AGFRNC
FR
14
OSEOFI
FR
11
CDCEPS
FR
3
CNA
FR
2
ACOSS
FR
-
BNG
NL
23
NEDWBK
NL
18
NEDFIN
NL
2
OBND
AT
8
ASFING
AT
8
FINNVE
FI
4
TVRFIN
FI
2
ICO
ES
9
ADIFAL
ES
3
CDEP
IT
3
IP (REFER / ESTPOR)
PT
-
SEDABI
SI
1
DARSDD
SI
-
FADE
ES
4
KUNTA
FI
1
PARPUB
PT
1
CASDEL
IT
-
AFLBNK
FR
2
APHP
FR
-
GDCHU
FR
-
SPABSS
FR
-
HSGFIN
IE
-
FRBRTC
BE
-
SOCWAL
BE
-
FONWAL
BE
-
SWLBEL
BE
-
Source: ECB, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 13 of 109
Issuer Guide 2016 – Eurozone (EU19)
ECB purchase list for the PSPP – regional issuers
Issuer
Jurisdiction
Number of ISINs already purchased
BADWUR
DE
3
BAYERN
DE
-
BERGER
DE
10
BREMEN
DE
5
BRABUR
DE
3
HESSEN
DE
10
HAMBRG
DE
2
NIESA
DE
4
MECVOR
DE
-
NRW
DE
23
RHIPAL
DE
4
SAARLD
DE
-
SCHHOL
DE
-
SAXONY
DE
-
SACHAN
DE
-
THRGN
DE
1
LANDER
DE
5
IDF
FR
2
VDP
FR
1
MADRID
ES
6
CASTIL
ES
1
BASQUE
ES
1
ARAGON
ES
1
WALLOO
BE
2
FLEMSH
BE
2
LCFB
BE
1
Source: ECB, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 14 of 109
Issuer Guide 2016 – Eurozone (EU19)
Introduction
Objectives and structure of the study
Analysts:
Mario Gruppe, CIIA
Norman Rudschuck, CIIA
This study aims to provide concise up-to-date information for investors intending to invest in government bonds issued in the Eurozone (EU19). Besides a general analysis of
the market, individual profiles of all the countries are provided. The study focusses on
EUR bonds from the issuers (including FRN, inflation-linked bonds), with a distinction
made in accordance with the respective national classification. In all our research, we
rely primarily on official documents published by the EU Commission, the relevant
states, finance ministries, financial agencies, treasuries and statistical authorities (especially Eurostat). We also obtain valuable contributions from gtai (Germany Trade & Invest) and UN Comtrade. All data is based on research using the Eurostat database and
the Bloomberg financial information system. Underlined terms have web links to the
relevant original sources. We would like to point out that these pages are outside the
sphere of responsibility of NORD/LB. For this reason it is not possible to accept any
responsibility for the content.
Regional classification of EU
regions based on NUTS
(Nomenclature des unités
territoriales statistiques)
We make use of the NUTS system (Nomenclature des unités territoriales statistiques) as
a standardised basis for classifying economic regions. It was introduced at the start of
2008. NUTS breaks the EU down into three different regional levels based on number of
inhabitants: The NUTS 1 level (3 to 7 million inhabitants) comprises 98 regions, while the
NUTS 2 level has 276 regions (800,000 to 3 million inhabitants). The NUTS 3 level has
1,342 units (150,000 to 800,000 inhabitants). Above these three regional levels there is
also the NUTS 0 level, corresponding to the national states. The regional GDP shares
mentioned in this study are based on data from the year 2014.
NACE (Nomenclature
statistique des activités
économiques dans la
Communauté européenne)
Eurostat provides information on the respective shares of individual economic areas in
the gross value added of economies. They are rendered comparable through the use of
NACE codes (Nomenclature statistique des activités économiques dans la Communauté
européenne), which are available in different degrees of granularity. Within the scope of
this work, we shall restrict ourselves to making a distinction between ten sectors [nama_nace10_c]. In the English Version the ten branches are defined as: A – Agriculture,
forestry and fishing, B-E – Industry (except construction) F – Construction; G-I – Wholesale and retail trade, transport, accommodation and food service activities J – Information and communication K – Financial and Insurance Activities L – Real Estate Activities M-N – Professional, scientific and technical activities; administrative and support
service activities O-Q – Public administration, defence, education, human health and
social work activities R-U – Other service providers (Arts, entertainment and recreation;
other service activities; activities of household and extra-territorial organizations and
bodies).
SITC (Standard International
Trade Classification, Rev. 4)
In addition, the country profiles presented in this study have a detailed ranking of foreign
trade goods and preferred trading partners. In this case too, in order to achieve comparability of the categories that are applied very differently in national statistics, we use
SITC (Standard International Trade Classification, Rev. 4) for each country. SITC is a
systematic classification of items in international foreign trade, which Eurostat uniformly
provides for the EU members. In the English version, the nine sections are designated
as follows: 0 – Food and live animals, 1 – Beverages and tobacco, 2 – Crude materials,
inedible, except fuels, 3 – Mineral fuels, lubricants and related materials, 4 – Animal and
vegetable oils, fats and waxes, 5 – Chemicals and related products, n.e.s., [not elsewhere specified], 6 – Manufactured goods classified chiefly by material, 7 – Machinery
and transport equipment, 8 – Miscellaneous manufactured articles, 9 – Commodities and
transactions not classified elsewhere in the SITC. Systematically, we follow UN
Comtrade’s aggregation of certain sectors: sections 0 and 1 are aggregated into 0+1.
Furthermore, sections 2 and 4 are aggregated into 2+4.
NORD/LB Fixed Income Research
Page 15 of 109
Issuer Guide 2016 – Eurozone (EU19)
Basis of analysis
In order to ensure that terms and content are used systematically and that data can be
compared, we follow the European System of Accounts (ESA 1995), based on the
worldwide System of National Accounts (SNA 1993) created two years earlier. In the
context of the present analysis, the revenue and expenditure of the EU19 states are also
of key significance. The basis for this is the European System of Accounts (ESA 1995),
in particular the listing of distribution transactions (D).
Total Revenue; TR
Current taxes on income, wealth, etc. (D.5) cover all compulsory, unrequited payments,
in cash or in kind, levied periodically by general government on the income and wealth of
institutional units. Taxes on income (D.51) relate to taxes on incomes, profits and capital
gains as well as on holdings of property, land or real estate. Other current taxes (D.59)
include current taxes on capital, poll taxes, expenditure taxes, payments relating to the
use of transport and taxes on international transactions (except import duties). Taxes on
production and imports (D.2) consist of compulsory, unrequited payments levied in respect of the production and importation of goods and services. These include taxes on
products (D.21), value added type taxes (D.211), taxes and duties on imports excluding
VAT (D.212), taxes on products, except VAT and import taxes (D.214) as well as other
taxes on production (D.29). Property income (D.4) contains interest on deposits, loans
and accounts receivable and payable. Employees' social contributions (D.6112) are
social contributions payable by employees to social security, private funded and unfunded schemes.
Total Expenditure; TE
Compensation of employees (D.1) comprises the total remuneration, in cash or in kind,
payable by an employer to an employee in return for work done by the latter (gross
wages and salaries and social contributions). Social benefits (D.62) comprise all social
benefits except social transfers. Social transfers in kind (D.63) consist of goods and
services, provided as transfers in kind to individual households by government units and
NPISHs. Interest, payable (D.41) in particular comprises current coupon payments for
government bonds. Capital transfers, payable (D.9) include government expenditure to
support the national banking sector, which results in a change in the financial or nonfinancial assets shown in the balance sheet of at least one of the parties to the transaction.
NORD/LB Fixed Income Research
Page 16 of 109
Issuer Guide 2016 – Eurozone (EU19)
Eurozone (EU19)
Eurozone limited to 19 member states for time being
NUTS 0 regions of the
eurozone are equivalent
to nation states
With a GDP of EUR 10,454.6bn, the eurozone is the world’s second largest currency
area behind the USA, closely followed by China. In terms of population, the eurozone, at
339.7m, exceeds the United States but "only" ranks third behind India and China. The
euro was introduced as a book currency with eleven accession countries on 1 January
1999 in accordance with article 136 et seq. of the Treaty on the Functioning of the European Union. The euro has also been the official means of payment in cash transactions
since 1 January 2002. The eurozone has existed in its present size of 19 countries since
1 January 2015 (see chart below). The potential candidates for future accession to the
eurozone include the Eastern and South-eastern European countries Bulgaria, Croatia,
Poland, Romania, the Czech Republic and Hungary. However, this is dependent on
fulfilment of the accession criteria and the majority of the candidates are still a long way
from achieving this. The situation is different in Poland, where the economy is sufficiently
strong to make accession seem realistic in the near future. However, discussions there
on this topic have been influenced by two factors: firstly, adversely affected by the crisis
in Greece and the imponderables associated therewith, and secondly, positively fuelled
by the country's willingness to become more closely allied with the West in the wake of
the Crimea crisis.
[DE] Germany
[FR] France
[IT] Italy
[ES] Spain
[NL] Netherlands
[BE] Belgium
[AT] Austria
[FI] Finland
[IE] Ireland
[EL] Greece
[PT] Portugal
[SK] Slovakia
[LU] Luxembourg
[SI] Slovenia
[LT] Lithuania
[LV] Latvia
[EE] Estonia
[CY] Cyprus
[MT] Malta
Accession year Member country
Number of member countries in the eurozone
Source: NORD/LB Fixed Income Research; modelled after the Federal Office for Statistics
Countries outside the
eurozone, which have
pegged their currency
to the euro
There are also some states, most notably in Africa, which have pegged their currency to
the euro. Apart from the former Portuguese colonies Cape Verde Islands and Sao Tomé
and Príncipe, this is the case in the former French colonies Mali, Niger, Chad, Cameroon, Central African Republic, Senegal, Benin, Burkina Faso, Ivory Coast, Togo and
Gabon. Within the EU, Bulgaria has pegged its currency to the euro, as has BosniaHerzegovina, although the country is not yet a member of the European Union. Although
Denmark has not linked the Danish krone 1:1 to the euro, the Danish central bank ensures that the domestic currency fluctuates around the euro by a maximum of +/- 2.25%.
The Swiss National Bank had opted for a similar approach in that its exchange rate policy was designed to ensure the euro did not fall below 1.20 Swiss francs. However, it
abandoned this exchange rate policy on 15 January 2015 after more than three years
because of the strain it was putting on its own foreign exchange reserves.
NORD/LB Fixed Income Research
Page 17 of 109
Issuer Guide 2016 – Eurozone (EU19)
The euro: a haven of stability
The integration of Europe has made further progress with the European Economic and
Monetary Union; finally the member states have agreed to coordinate economic and
fiscal policy more closely within the framework of the Stability and Growth Pact. Nevertheless, fiscal policy remains primarily a national issue while monetary policy is the responsibility of the ECB. This is independent of political instructions in its actions and is
only subject to the goal of price stability specified in article 127 (1) of the Treaty on the
Functioning of the European Union. The latter is defined by the ECB’s Governing Council as an annual increase in the harmonised index of consumer prices of below 2%, but
close to that figure. The group of central bankers led by Mario Draghi and his predecessors can claim that they have almost always been very close to their inflation target
since the introduction of the euro until the outbreak of the financial crisis, but have rarely
achieved an inflation rate of less than 2%. Despite an expansive monetary policy, inflation rates have been falling significantly for some years and at times have shown deflationary tendencies (see chart). Nonetheless, it can be stated that the euro is distinguished by very stable prices, which contributes to its status as one of the world’s hardest currencies. The international significance of the euro is also apparent from the fact
that it is the world’s second most important currency after the US dollar, given that approximately one quarter of global trade is invoiced in euro (greenback over 60%).
Inflation rate in the eurozone according to HICP (in %)
Source: ECB, NORD/LB Fixed Income Research
Key trading partners of the
eurozone
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Public admin, educ., human health, social
2 Industry (except construction)
3 Trade, transport, accomodation, food serv.
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
The USA is the European currency union’s most important trading partner, closely followed by China and the UK. The latter is a fact that opponents of the country’s withdrawal from the EU liked to cite, the presumption being that trade would suffer from
Brexit. By contrast, most imports to the eurozone come from China (14.8%), followed by
the USA (10.8%) and the UK (9.3%). The export statistics are led by the USA (14.5%),
where somewhat more goods and services are exported from the eurozone than to the
United Kingdom (14.0%). China follows at some distance with a share of exports of
6.7%.
Value
338,5
2.843.495
10400,2
Value
18,5
18,6
21,7
9,9
8,9
22,4
1
2
3
4
5
6
7
8
9
10
Exports (Products)
Weight
Exports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
12,4%
1 USA
14,5%
Medicinal and pharmaceutical products
7,4%
2 United Kingdom
14,0%
Food, beverages and tobacco
7,3%
3 China
6,7%
General industrial machinery and equipment, n.e.s., and6,3%
machine parts, n.e.s.
4 Switzerland
5,8%
Electrical machinery, apparatus and appliances, n.e.s., and
5,9%
electrical parts thereof 5(including
Poland non-electrical counterparts, n.e.s.,
5,8%
of electrical household-type
Other transport equipment; confidential traffic of section 4,7%
7
6 Sweden
3,3%
Machinery specialized for particular industries
4,3%
7 Turkey
3,2%
Petroleum, petroleum products and related materials 4,2%
8 Russia
2,9%
Miscellaneous manufactured articles, n.e.s.; confidential3,5%
traffic of section 8
9 Hungary
2,5%
Power-generating machinery and equipment
3,5%
10 Japan
2,3%
Value
274,82
151,929
166,511
k.A.
k.A.
k.A.
-354,703
-8,388
71,14
-442,512
1
2
3
4
5
6
7
8
9
10
Imports (Products)
Weight
Imports (Countries)
Weight
Petroleum, petroleum products and related materials 12,4%
1 China
14,8%
Food, beverages and tobacco
6,8%
2 USA
10,8%
Electrical machinery, apparatus and appliances, n.e.s., and
6,4%
electrical parts thereof 3(including
United Kingdom
non-electrical counterparts, n.e.s.,
9,3%
of electrical household-type
Road vehicles (including air-cushion vehicles)
6,0%
4 Poland
5,8%
Telecommunications and sound-recording and reproducing
5,3%
apparatus and equipment
5 Switzerland
5,3%
Medicinal and pharmaceutical products
4,7%
6 Russia
5,1%
Articles of apparel and clothing accessories
4,4%
7 Sweden
3,2%
Crude materials
4,2%
8 Hungary
2,9%
Gas natural and manufactured
3,9%
9 Japan
2,7%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section 8
10 Turkey
2,5%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
NORD/LB Fixed Income Research
Page 18 of 109
Issuer Guide 2016 – Eurozone (EU19)
The subject of Eurobonds
remains off the table
Term (short)
3, 6, 9, 12m
max. 12m
3, 6, 12m
3, 6, 9, 12m
3m
6, 9, 12m
3m
6, 12m
max. 12m
Bubills [DE]
BTF [FR]
BOT, CTZ [IT]
Letras [ES]
DTC [NL]
BTC [BE]
The creation of a single euro bond market was only made possible by the introduction of
the single currency. However, nation states still feature as issuers because they have
retained responsibility for fiscal policy. During the financial crisis, the subject of Eurobonds, the issue of common bonds by all (jointly and severally liable) member states,
was hotly debated. With reference to the lack of an economic and fiscal union, Germany
in particular categorically rejected this idea, while France was one of the countries to
position itself pro-Eurobonds. The current situation is that investors in European sovereign bonds resort to the respective bonds offered by national treasuries or financial
agencies. Italy is the largest issuer, ahead of France, Germany and Spain.
Security
Bubills; BUBILL
BTF; BTF
BOT; BOTS
Letras; SGLT
DTC; DTB
DTC; DTB
BTC; BGTB
BTC; BGTB
ATB; RATB
Day count
act/360
act/360
act/360
act/360
act/360
act/360
act/360
act/360
act/360
Coupon type
zero
zero
zero
zero
zero
zero
zero
zero
zero
Cpn frequency
discounted
discounted
discounted
discounted
discounted
discounted
discounted
discounted
discounted
Issuance
monthly
weekly, Monday
monthly
once a month
twice a month
once a month
twice a month
once a month
regularly
German Bubills (non-interest bearing treasury bills) cover the conventional maturities of
3, 6, 9 or 12 months and are placed in a four-weekly cycle. Each Monday, a French BTF
with a three-month maturity is issued and, at the same time, either a half-year or wholeyear BTF is auctioned on an alternating basis. As a rule, Italian BOT run for 6 or
12 months, but can, according to the Italian Treasury, also be terminated at 3 months,
maturity or flexibly (BOT flessibili). Spanish Letras (3, 6, 9, 12 months) once also offered
high returns. In the case of DTC, the three-month maturity is offered every two weeks;
other maturities are auctioned every four weeks. Belgian BTC cover the 3, 6 and 12month maturities. While the 3m-BTC are offered every two weeks, the other two maturities are placed alternately (monthly rota).
EUR bonds eurozone (EURbn) – Maturity profile
Link Rating Overview
Source: Bloomberg, NORD/LB Fixed Income Research; Core Europe: Netherlands, Belgium, Austria, Finland,
Luxembourg; Periphery: Portugal, Greece, Ireland, Cyprus, Malta; Central Europe: Slovakia, Slovenia, Latvia;
Estonia (no sovereign bonds issued at present)
NORD/LB Fixed Income Research
Page 19 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term (intermediate) Security
Day count
Coupon type
Cpn frequency Issuance
2y
Schätze; BKO
act/act
fixed
annual
4x per year
5y
Bobls; OBL
act/act
fixed
annual
2x per year
2, 5y
BTAN; BTNS
act/act
fixed
annual
monthly, 3rd Thursday
24m
CTZ; ICTZ
act/365
zero
discounted
end of each month
3y
BTP; BTPS
act/act
fixed
semi-annual
mid. of each month
5y
BTP; BTPS
act/act
fixed
semi-annual
end of each month
2, 3, 5y
Bonos; SPGB
act/act
fixed
annual
once a month
3, 5, 10y
DSL; NETHER
act/act
fixed
annual
1 - 3x per year
max. 30y
OLO; BGB
act/act
fixed
annual
last Mon. monthly
max. 70y
Bund.; RAGB
act/act
fixed
annual
once a month
Schätze, Bobls [DE]
Germany, Italy and France constitute the most liquid securities in the two to five-year
BTAN [FR]
maturities. Federal treasury bills (Schätze; BKO; 2y) and federal bonds (Bobls; OBL; 5y)
CTZ, BTP [IT]
are the two German variants, while in France these maturities are each represented by
Bonos [ES]
BTAN. In the short to medium-term segment, Italy issues BTP as three-year or five-year
DSL [NL]
bonds. In Italy, CTZ offer two-year maturities from the date of issue. They are designed
OLO [BE]
as zero bonds. In the short to intermediate maturity range, the Spanish Ministry of FiBundesanleihen [AT]
nance issues Bonos with maturities of two, three and five years. Dutch DSL are not
issued as two-year bonds. OLO are usually (apart from in August and December) auctioned on the last Monday of the month. Finnish bonds are usually placed with higher
maturities (5y or 11y), which is why we have included them in the following context.
Term (long)
Security
Day count
Coupon type
Cpn frequency Issuance
10y
Bunds; DBR
act/act
fixed
annual
3x per year
30y
Bunds; DBR
act/act
fixed
annual
ca. every 2 years
7y to 50y
OAT; FRTR
act/act
fixed
annual
monthly, 1st Thursday
7y
CCT; CCTS
act/act
fixed
semi-annual
as required
7y
BTP; BTPS
act/act
fixed
semi-annual
mid. of each month
10y
BTP; BTPS
act/act
fixed
semi-annual
end of each month
15, 30y
BTP; BTPS
act/act
fixed
semi-annual
as required
10, 15, 30y
Oblig.; SPGB
act/act
fixed
annual
once a month
20, 30y
DSL; NETHER
act/act
fixed
annual
every 5 to 6 years
max. 30y
OLO; BGB
act/act
fixed
annual
monthly
max. 70y
Bund.; RAGB
act/act
fixed
annual
once a month
5y to 30y
Fin.Govt.; RFGB act/act
fixed
annual
2x per year
max. 50y
OT; PGB
act/act
fixed
annual
irregular
>1 year
FRB; IRISH
act/act
fixed
annual
irregular
5y to 20y
ŠD; SLOVGB
act/act
fixed
annual
irregular
6, 10y
ŠD; SLOVAK
act/act
fixed
annual
irregular
5, 10, 15y
LGB
act/act
fixed
annual
as required
5, 10, 15, >15y
RS; SLOREP
act/act
fixed
annual
irregular
7, 10y
LATVIA
act/act
fixed
annual
as required
Bunds [DE]
German government bonds (Bunds; DBR) cover maturities from 10 years or 30 years.
OAT [FR]
While the ten-year bonds are issued three times a year, 30-year bonds are generally
CCT, BTP [IT]
issued every two years. French OAT have a maturity of at least seven and a maximum
Obligaciónes [ES]
of 50 years from issuance. Spanish obligaciónes are issued for 10, 15 and 30 years.
DSL [NL]
Austrian government bonds (RAGB) may have maturities of up to 70 years. RAGB 1 ½
OLO [BE]
11/02/86 is of late the longest-dated sovereign bond in the eurozone, ahead of various
Bundesanleihen [AT]
Finnish Govt. Bond [FI]
bonds from Italy, France, Spain and Belgium, all of which also do not expire until after
Obrigações do Tesouro (OT) 2060. With an outstanding volume of some EUR 72bn, ITALY 3.7 11/14/16 is still the
[PT]
largest sovereign bond in the eurozone for a short time. It is followed by a bond from
Irish Fixed Rate Bond [IE]
Greece at around EUR 62bn and another bond from Italy (EUR 50bn). Various French
Slovakia Govt. Bond [SK]
bonds come to over EUR 40bn. The largest German bond is currently worth EUR 26bn
Luxemburg Govt. Bond [LU]
(DBR 0 ½ 02/15/26). Of the issuers listed here, most countries offer volumes of between
Slovenia Govt. Bond [SI]
Latvian Govt. Bond [LT]
EUR 10 and EUR 20bn. The bonds issued by Slovakia, Slovenia and Luxembourg are
far smaller; as a rule their sovereign bonds do not exceed amounts of between EUR
1bn and EUR 3bn.
NORD/LB Fixed Income Research
Page 20 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
5y
CCTeu; CCTS
act/360
FRN (EUR006M) semi-annual
once a month
7y
CCT; CCTS
act/act
FRN (GBOTG6M) semi-annual
once a month
5y
OLO; BGB
act/360
FRN (EUR003M) quarterly
irregular
25y to 40y
VRB; IRISH
act/act
FRN (EUR006M) semi-annual
8 February 2013
3, 5, 6y
ŠD; SLOVGB
act/360
FRN (EUR006M) semi-annual
irregular
Floating Rate Notes (FRN):
Italy is also the dominant issuer of FRN. CCT have been representing the medium Italian maturities segment (7 years) since 1991. Their performance is linked to the 6m BOT
CCT, CCTeu [IT]
yield (Bloomberg: GBOTG6M). Since 2010, CCTeu (5 years) have been issued primariOLO; BGB [BE]
Irish Variable Rate Bonds [IE] ly, where the reference index is 6m-Euribor (Bloomberg: EUR006M). At present there is
only one of the previous two OLO series in circulation (BGB Float 05/02/18; EUR 2.5bn),
Slovakia Govt Bond [SK]
which are issued as FRN. Six Irish FRN represent a volume of around EUR 20.5bn
(reference index: 6m-Euribor), which will mature between 2043 and 2053.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
5y
Bobl€i; OBLI
act/act
I/L (CPTFEMU)
annual
once a month
10y
Bund€i; DBRI
act/act
I/L (CPTFEMU)
annual
once a month
7y to 50y
OAT€i; OAT
act/act
I/L (CPTFEMU)
annual
once a month
5, 10, 15, 30y
BTP€i; BTPS
act/act
I/L (CPTFEMU)
semi-annual
end of each month
2, 5y
BTANi; BTAN
act/act
I/L (FRCPXTOB) annual
once a month
7y to 50y
OATi; OAT
act/act
I/L (FRCPXTOB) annual
once a month
4y
BTP; BTPS
act/act
I/L (ITCPIUNR)
semi-annual
twice a month
10y
BONO€i; SGBEI act/act
I/L (CPTFEMU)
annual
20 May 2014
Inflation-indexed bonds:
From a German perspective, five-year Bobl€i (OBLI) and ten-year Bund€i (DBRI) are
issued, which are both linked to the eurozone’s harmonised consumer price index (HICP
Bobl€i and Bund€i [DE]
excl. tobacco; Bloomberg: CPTFEMU). Index-linked French bonds (BTAN; OAT) may
OATi and BTANi
alternatively be linked to the French consumer price index excl. tobacco (Bloomberg:
OAT€i and BTAN€i [FR]
FRCPXTOB), meaning that there are four possible combinations in principle. Actually,
BTP€i, BTP Italia [IT]
there are only three alternatives at present (OAT€i; OATi; BTANi). Italy offers two differBONO€i [ES]
ent securities. BTP€i, which focus solely on the European HICP excl. tobacco, have
been created for institutional investors. With the exception of the three-year maturity,
BTP€i replicate the maturity range of ordinary BTP. However, BTP Italia were originally
designed as retail bonds with a maturity of four years, where the Italian inflation rate
excl. tobacco (Bloomberg: ITCPIUNR) acts as the reference index. Spain has also been
represented in this market segment since 20 May 2014 with SPGBEI 1.8 11/30/24.
Since then, it has added three further bonds (2019, 2021 and 2030). The total volume is
already around EUR 28bn.
Eurozone govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06.2015
-1
08.2015
2 Yr
10.2015
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 21 of 109
Issuer Guide 2016 – Eurozone (EU19)
Debt decreases slightly
Even if the budget situation in eurozone countries – compared with the period following
the outbreak of the financial crisis – has slowly improved, there is still no question of it
having normalised by any means. The EU19 as a whole reports aggregate total debt of
90.7% of gross domestic product generated with a budget deficit of 2.1%. Among the
members of the European currency union, only Luxembourg, the three Baltic states and
Slovakia comply with the Maastricht criterion relating to maximum government debt of
60% of GDP. Nevertheless, total debt in EU19 fell slightly in 2015 for the first time since
2007. There are essentially two countries at the forefront of this development. As the
economically most important nation in the eurozone, Germany has now been reducing
its gross debt relative to GDP for four years in a row. Ireland has also managed to cut its
national debit by more than 25 percentage points since its peak in 2012.
Estonia as a model pupil
Estonia stands out among the model pupils from the Baltics. The small country has debt
measured against GDP of only 9.7%. Even Germany, which is regarded as a defender
of austerity policies, exceeds one of the two Maastricht criteria with budget debt of
71.2%. The introduction of the debt ceiling, which Germany has imposed upon itself to
prevent any further expansion in its debt, will not change anything either. However, this
will make a contribution to gradually reducing total debt and using budget surpluses to
repay liabilities.
Gross debt vs. budget balance EU19 (% of GDP)
100
Total revenue vs. total expenditure EU19 (EURbn)
0
90
-1
80
-2
70
60
-3
50
-4
40
30
-5
20
-6
10
230
220
210
200
190
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
2005
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-7
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Net lending/borrowing (% of GDP, rhs)
N.B.: the EU18 figures are shown up to and including 2010.
Source: Eurostat, NORD/LB Fixed Income Research
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 22 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comments – Public finances
Since the much discussed Eurobonds have still not been introduced to date, a statement
about the creditworthiness of the eurozone as a whole is of limited significance. Ultimately, although there is a single currency, the member countries of the European currency union continue to issue bonds individually. An assessment of the financial situation
of the respective countries can be found in our analyses on the following pages. However, the eurozone acts as a whole alongside the ECB and IMF in relation to the rescue
packages for individual crisis-stricken countries. The fears of one issuer defaulting have
been ignited primarily by the Greek saga. However, in view of the situation there, it is
difficult to make a reliable statement about the likelihood of Greek government bonds
being repaid. The other programme countries – particularly Ireland – have turned the
corner, but even Spain and Portugal are making progress. In the end, the future budget
situation will depend primarily on growth in the global economy. The onset of another
crisis would be a severe setback for the periphery countries in particular. In this connection, the growth stimuli emanating from the USA are sending out positive signals. Nevertheless, investors should bear in mind the impact that a tighter US monetary policy will
have on yields on the European bond market.
Comments – Bond market
There has been a dramatic fall in yields on all major bond markets since 2014. This
situation is exacerbated by the ECB’s purchase programme which is also pushing prices
to previously unseen levels, as a result of which yields have in turn fallen into negative
territory and were still stuck there in maturities of up to ten years (Germany) at the start
of October 2016. If the current ultra-expansive monetary policy is prolonged, inflation
persists at zero level, crisis mode continues in various European countries and there is
ever new speculation about current and future problem children in the eurozone, no
appreciable increase in yields, especially in the AAA range, can be expected in the coming years.
NORD/LB Fixed Income Research
Page 23 of 109
Issuer Guide 2016 – Eurozone (EU19)
Germany
Debt reduction coupled with steady economy
The NUTS 1 regions of
Germany correspond to the
16 German Länder:
In terms of economic output (2015: EUR 3,025.9bn; proportion of eurozone GDP:
29.1%), Germany is number one in the single currency area and number four in the
world as a whole, behind the USA, China and Japan. The German economy is characterised by the high value creation in high-tech sectors and the major importance of the
innovative small and medium size enterprises (SME) sector. During the financial crisis,
Germany benefited from relatively low unit labour costs despite the general inflexibility of
the employment market. The main trading partners are the USA, France and the UK.
Germany ranks as the top trading partner for 17 members of the eurozone. Only Cyprus
has an exchange of goods with Germany that is less dominant. From a regional viewpoint, about three quarters of German economic output is spread across only five Länder. With a GDP share of 21.3%, NRW is ahead of Bavaria (18.1%), BadenWürttemberg (15.2%), Hesse (8.7%) and Lower Saxony (8.6%). Major conurbations are
Rhine/Ruhr [DEA; DEB] and Rhine/Main [DE7]. According to Eurostat, industry (excluding construction) contributes 25.5% to German gross value added, which is significantly
more than in France (12.8%) or Italy (18.3%), for example. The most important industries are machinery and transport equipment (SITC 7) and chemicals (SITC 5). The
automotive industry heads the ranking as far as sales are concerned, followed by mechanical engineering, electrical engineering and chemicals. The German chemicals and
pharmaceutical sector is number one in the eurozone, ahead of France. Promotional
banks, business promotion agencies and a dense network of regional chambers of foreign trade form a system that is unique in Europe, making Germany one of the most
attractive FDI locations in the world. Due to the high deficit in tourism, Germany’s invisible trade balance is traditionally negative. However, this is more than compensated by a
clearly positive position in the balance of trade. For 2016, the Ifo Institute predicts that
Germany will again be the world’s leading export nation. As a consequence, Germany is
one of the biggest net exporters of capital worldwide.
[DE1] Baden-Württemberg
[DE2] Bayern
[DE3] Berlin
[DE4] Brandenburg
[DE5] Bremen
[DE6] Hamburg
[DE7] Hessen
[DE8] Mecklenburg-Vorpommern
[DE9] Niedersachsen
[DEA] Nordrhein-Westfalen
[DEB] Rheinland-Pfalz
[DEC] Saarland
[DED] Sachsen
[DEE] Sachsen-Anhalt
[DEF] Schleswig-Holstein
[DEG] Thüringen
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Industry (except construction)
2 Public admin, educ., human health, social
3 Trade, transport, accomodation, food serv.
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
81,2
357.376
3025,9
Value
25,5
18,4
14,5
12,2
11,4
18,1
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
11,7%
18,2%
1 USA
9,7%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 7,4%
parts thereof 2(including
France non-electrical counterparts, n.e.s.,
8,7%
of electrical household-type
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
7,1%
n.e.s.
3 United Kingdom
7,5%
Medicinal and pharmaceutical products
6,6%
5,8%
4 Netherlands
6,3%
Food, beverages and tobacco
9,0%
5,4%
5 China
6,1%
Other transport equipment; confidential traffic of section 4,3%
7
4,9%
6 Italy
4,9%
Machinery specialized for particular industries
3,3%
3,9%
7 Austria
4,9%
Power-generating machinery and equipment
2,8%
3,6%
8 Poland
4,4%
Manufactures of metals, n.e.s.
3,1%
3,6%
9 Switzerland
4,1%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
3,5%
8
10 Belgium
3,5%
Wert
205,95
184,194
-13,128
-33,646
-6,871
27,39
-250,599
-23,22
-164,966
-45,478
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
8,9%
9,0%
1 Netherlands
13,1%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 7,6%
parts thereof 2(including
France non-electrical counterparts, n.e.s.,
7,8%
of electrical household-type
Food, beverages and tobacco
8,8%
7,5%
3 China
7,5%
Petroleum, petroleum products and related materials 8,2%
5,6%
4 Belgium
6,0%
Medicinal and pharmaceutical products
5,3%
4,5%
5 Italy
5,4%
Other transport equipment; confidential traffic of section 3,5%
7
4,1%
6 Poland
5,2%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
4,0%
n.e.s.
7 USA
4,9%
Crude materials
4,1%
4,0%
8 Czech Republic
4,6%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,9%
8
9 Switzerland
4,3%
Manufactures of metals, n.e.s.
2,9%
3,5%
10 Austria
4,3%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Despite the Greek and
migrant crises, German
economy is on track for
growth
Germany is again living up to its reputation and reported strong and steady GDP growth
in 2015 amounting to 1.7%. The key growth drivers of the German economy were both
private and government consumption expenditure, which reported a year-on-year improvement of 1.9% and 2.8%, respectively. Investment by companies and the state also
increased. In 2015, both exports and imports exceeded the previous maximum values
from 2014. This is due to the greater demand from Europe. Trade with non-eurozone EU
countries and third countries also improved. For 2016, the European Commission is
forecasting economic growth of 1.6%, but it remains to be seen to what extent Brexit will
impact this growth.
NORD/LB Fixed Income Research
Page 24 of 109
Issuer Guide 2016 – Eurozone (EU19)
Germany’s debt manager is
the German Finance Agency
In Germany, the German Finance Agency is responsible for borrowing and debt management. Including inflation-indexed bonds and non-interest bearing treasury bills,
around EUR 1,147bn (158 bonds) had been placed as at 31 October 2016. This positions Germany in third place as an issuer within the single currency area, behind Italy
and France. According to the issue planning for 2016, EUR 202.5bn will be placed, of
which EUR 48.5bn is accounted for by the money market. The Finance Agency provides
a compressed overview of scheduled issues in an annual overview. Depending on the
maturities segment (short, medium and long-term), the capital market instruments concentrate on three different variants (treasury bills, bonds, German government bonds). In
some cases, these are also issued as an inflation-indexed security. The German federal
government reserves the right to issue additional financing instruments, depending on
market conditions and other basic data.
Collective action clauses and
stripping
Amended issue conditions have been in place since 1 January 2013 due to the introduction of collective action clauses (CACs). This involves implementation of a requirement
in the treaty establishing the European Stability Mechanism (ESM), stipulating that “collective action clauses shall be included ... in all new euro area government securities,
with maturity above one year”. This amendment to the issue conditions has the consequence that capital and coupon strips resulting from these German government bonds
must also have CACs. The German federal government decided to re-define the stripping dates, starting from 2013. Since the start of 2013, the due dates for interest and
capital have been standardised as 15 February, 15 May and/or 15 August.
EUR bonds Germany (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AAA
Stable
Moody’s
Aaa
Stable
AAAu
Stable
S&P
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
How low could German yields While the net yield was still more than 1% at the time of publication in 2014, the opening
fall before there is a buyer
yield at the start of 2015 was 0.48%. The opening value in 2016 was just two basis
strike?
points lower. On 6 July, it reached the lowest level ever recorded of -0.29% – an unimaginable rate in the past. The considerable movements in yields, both in one direction
and then in the other, had not been expected after the start of the ECB’s bond purchase
programme. The yield on Bunds was at times negative up to maturities of ten years. It
was not until June that two-year papers posted the lowest yield ever recorded (-0.74%).
We do not wish to belabour the highlighted “Japanese scenario”, but the finance minister
would probably not have dreamt in the past that the Finance Agency of the Federal
Republic of Germany would earn money with the issue of bonds over an extended period. The ten-year benchmark was at -0.205% intraday on one trading day. Following the
election of Donald Trump as President of the United States, yields on the German bond
market were (more) positive.
NORD/LB Fixed Income Research
Page 25 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
3, 6, 9, 12m
Bubills; BUBILL act/360
zero
discounted
once a month
Non-interest bearing treasury Non-interest bearing treasury bills (Bubills; BUBILL) are discounted money-market inbills (Bubills; BUBILL)
struments that generally have maturities of three, six, nine or twelve months. At present
(as at: 31 October 2016), 15 Bubills cover a volume of EUR 29.5bn. According to the
Finance Agency, securities will be issued once a month in 2016, with maturities of six or
twelve months. The issue volume per 6m Bubills is between EUR 2bn and EUR 3bn,
while 12m Bubills will be issued monthly in the amount of EUR 1.5bn. The German federal government has stated that the planned issue volume for 2016 will be EUR 48.5bn.
Term
2y
Security
Schätze; BKO
Federal treasury bills (BKO)
Day count
act/act
Coupon type
fixed
Cpn frequency
annual
Issuance
quarterly
Federal treasury bills (Schätze; BKO) have a two-year maturity and have been issued in
a quarterly cycle since September 1996 (February, May, August, November). Federal
treasury bills are usually topped up to volumes of between EUR 13bn and EUR 14bn
each in the two months after issuance. The resulting EUR 53bn in 2016 represents more
than one quarter of the German federal government’s total issue volume. A volume of
EUR 107.0bn has currently been issued, distributed between eight securities.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
5y
Bobls; OBL
act/act
fixed
annual
half-yearly
German federal medium-term German federal medium-term bonds (Bobls; OBL) have been in existence since 1975
bonds (OBL)
and are issued with a five-year maturity. Two new series are scheduled for 2016, which
will each be launched with EUR 5bn in both April and October. Each series will be
topped up to an outstanding volume of EUR 20bn and EUR 21bn in the subsequent
months (totalling EUR 41bn). At present, 16 Bobls with a volume of EUR 259.0bn have
been placed.
Term
10y
Security
Bunds; DBR
Day count
act/act
Coupon type
fixed
Cpn frequency
annual
Issuance
three times per
year
every two years
30y
Bunds; DBR
act/act
fixed
annual
German government bonds
German government bonds (Bunds; DBR) have been on the market since 1952, cover(DBR)
ing maturities of ten years and 30 years. As Bunds make up more than 60% of the debt
portfolio, they are the main source of refinancing for the German state. All in all, 38 securities with a total volume of EUR 702.5bn have been issued (including 30 years). It is
possible to separate capital claims and interest entitlement (stripping) in the case of all
Bunds. Two new ten-year German federal bonds are generally issued in January and
July (maturities of February and August 2026, respectively). The initial issue volume is
between EUR 3bn and EUR 5bn. Five tap issues are scheduled in subsequent months
until the Bunds have each reached a volume of around EUR 25bn to EUR 26bn. In the
30-year maturity segment, the German federal government only intends to further top up
the federal bonds that were issued in 2012 (EUR +3bn) and 2014 (EUR +6bn). This
results in a volume of EUR 9bn. The 30-year maturity was included in the product range
in 1997 and currently represents a total amount of EUR 189.2bn.
Term
5y
10y
Security
Bobl€i; OBLI
Bund€i; DBRI
Inflation-indexed federal
securities exist as German
federal medium-term bonds
(Bobl€i) and German
government bonds (Bund€i)
Day count
act/act
act/act
Coupon type
I/L (CPTFEMU)
I/L (CPTFEMU)
Cpn frequency
annual
annual
Issuance
monthly tap
monthly tap
Inflation-indexed securities were not included in the product range until relatively late
(2006). All Bund€i that now exist have been regularly topped up since inaugural issue,
although only one has been repaid so far (April 2016). While inflation-indexed federal
securities are a fixed component of the strategic issue planning, there will currently
(2016) only be activity if the market conditions are suitable. At present, EUR 53.0bn are
available as Bund€i (DBRI): two older papers in the amount of EUR 16bn each and
three younger papers with longer maturities totalling EUR 5bn, EUR 8bn and EUR
8.5bn. An additional EUR 15.0bn has been placed on the market as a five-year Bobl€i
(OBLI) (OBLI 0 ¾ 04/15/18). Linkers are generally offered on every second Tuesday in a
month (exceptions: August and December). Both Bobl€i and Bund€i are linked to the
performance of the European HCPI index ex tobacco (Bloomberg: CPTFEMU).
NORD/LB Fixed Income Research
Page 26 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
D-Bond; BULABO act/act
7y
fixed
annual
26 June 2013
German federal government- In 2013, a bond was issued jointly by the German federal government and the Länder
Länder bond (“Deutschland
(BULABO 1 ½ 07/15/20; EUR 3bn) for the first time. In this case the issuers are liable on
bond”)
a several (but not joint) basis. Only the portion issued by the Federal Republic of Germany (13.5% of the issue volume) is subject to the CAC introduced with effect from
1 January 2013, while the portions issued by the Länder are not affected by the introduction of CAC throughout Europe. With regard to the Länder, the proportion issued by
NRW is the highest (20.0%). Bavaria, Baden-Württemberg, Hesse and Lower Saxony
did not participate in this first issue of a D bond.
Other federal instruments:
Optionally, the German federal government is entitled to issue FX bonds or raise bor-
FX bonds, borrower’s note rower’s note loans (SSD) “if the market conditions are suitable”. The USD bonds GERloans (SSD)*
MAN 3 ⅞ 06/01/10 and GERMAN 1 ½ 09/21/12 have so far remained exceptions. Since
*SSD: not securities, but loans securitised by means of borrower’s note
the end of 2010, SSD have remained at a level around EUR 12bn (as at end of October
2016).
Germany govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06.2015
-1
08.2015
2 Yr
10.2015
12.2015
4 Yr
01.2016
5 Yr
04.2016
7 Yr
06.2016
08.2016
10 Yr
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
Improvement in financial
balance
Government debt fell once again in 2015 when compared with the previous year. It was
71.2% of GDP (2014: 74.7% of GDP). Following a rise of 0.3% of GDP in 2014, the
German state managed to generate a financial balance of 0.7% of GDP in 2015. Positive balances were achieved at all levels: EUR 10.3bn by the federal government, EUR
0.4bn by the Länder, EUR 3.9bn by the municipalities and EUR 4.8bn social security.
Through the debt brake, which entered into force in 2011 and is anchored in constitutional law, together with supporting legislation, Germany laid the foundation for sustainable compliance with the requirements of the Stability and Growth Pact. In the stability
programme the state revenue ratio relative to GDP was stated as 44.6% for 2015. The
German government’s intention is to again not take up new debt in 2016 and to put in
place a federal budget for 2017 without new debt.
Social contributions are the
most important item on the
revenue side
In 2015, total German revenue rose to EUR 1,349.9bn (2014: EUR 1,299.6bn). Revenue
from current taxes on income, wealth etc. amounted to EUR 364.4bn in 2015 (2014:
EUR 345.6bn). However, with a share of 27% this is only the second-biggest item. The
largest single item is traditionally social contributions amounting to EUR 501.2bn (2014:
EUR 481.9bn), representing 37.1% of total revenue. Taxes on production and imports
(EUR 326.5bn) account for around a quarter of all revenue and likewise increased in
comparison with 2014 (EUR 314.0bn). Only other revenue (EUR 157.9bn) remained
unchanged year on year (2014: EUR 158.0bn). For simplification purposes, we include
property income (European System of Accounts – ESA 95: D.4), even though this diverges from the method used by the German Federal Ministry of Finance.
NORD/LB Fixed Income Research
Page 27 of 109
Issuer Guide 2016 – Eurozone (EU19)
Expenditure is slightly below
the level of revenue
Total expenditure grew to EUR 1,328.7bn (2014: EUR 1,291.2bn). More than half of this
amount (54.3%) was allocated to monetary social security benefits and social transfers
in kind (EUR 721.6bn; 2014: EUR 691.1bn). Other expenditure (22.4% of total expenditure) rose from EUR 287.6bn (2014) to EUR 297.5bn. Employee compensation (EUR
230.7bn; 2014: EUR 224.6bn) followed in third place, accounting for 17.4%. Due to
continuing moderate interest expenses resulting from the favourable conditions on capital markets, interest payable once again fell in 2015. This amounted to EUR 48.5bn
(2014: EUR 51.5bn) and consequently made up only 3.7% of all expenditure. Asset
transfers, which had totalled EUR 36.4bn in 2014, were also down to total EUR 30.3bn
in 2015.
Government debt vs. budget balance (% of GDP)
100
Total revenue vs. total expenditure (EURbn)
1
90
0
80
70
-1
60
50
-2
40
-3
30
20
-4
10
0
-5
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Government consolidated gross debt (% of GDP, lhs)
Other revenue
Other expenditure
Net lending/borrowing (% of GDP, rhs)
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Source: Eurostat, NORD/LB Fixed Income Research
Germany’s high degree of international competitiveness is primarily due to the innovative power of its companies. While the country is heavily dependent on energy imports,
complex products and systems dominate its exports, with price positioning in the upper
segments of international trade. On this basis, Germany managed to generate high
current account surpluses even during the financial crisis. Since 2012, the debt ratio has
been in steady decline and, barring any change in the economic environment, will be
reduced further in the coming years. Potential reasons for uncertainty in the German
economy include Brexit and OPEC’s recently implied cut in oil production.
Strengths & opportunities
Weaknesses & risks
+
High degree of international competitiveness
–
International criticism of current account surplus
+
High innovative power, especially SMEs
–
EU criticises focus on direct taxes
+
Reforms (labour market, debt brake)
–
Costs of healthcare and pensions
+
Solid budgetary situation
–
Additional expenditure (transition to alternative
energy sources/integration of migrants)
+
Political stability
–
(Partial) modernisation of infrastructure required
+
AAA credit rating, very high liquidity of bonds
–
Low yields, in some cases negative
Source: NORD/LB Fixed Income Research
Comment – Bond market
German Bunds benefit from the existence of the European common currency and the
common monetary policy pursued by the ECB. Although the yield on German government bonds has settled at a historically very low level due to the financial crisis, there
still does not appear to be any buyer strike, even with negative yields. From an investor
viewpoint, this kind of clustering of economic strength and high credit rating is extremely
positive with regard to the security of the capital investment. Conversely, German government bonds continue to offer the lowest yields in the eurozone. Due to their excellent
ratings and high liquidity, German government bonds are in demand, especially in
“flight-to-quality” periods.
NORD/LB Fixed Income Research
Page 28 of 109
Issuer Guide 2016 – Eurozone (EU19)
France
A sleeping giant is shaken by terror
France is divided into nine
NUTS 1 regions:
With GDP of EUR 2,181.1bn in 2015, France is the second-biggest economy in the
eurozone and No. 5 worldwide. The largest country by area in the eurozone also has
one of the highest birth rates in the western world (2.01 in 2015). This results in annual
population growth of 0.4% and an increase in the number of inhabitants to 66.7m
(1 January 2016). In contrast to Germany, which is known throughout the world for its
SMEs, the French economy is very much dominated by large companies. As a result,
the highest performers in the French economy and foreign trade are the large corporations in the CAC 40 stock market index that enjoy international success and are more
than 50% foreign-owned. French companies in the hi-tech sectors are world-class. In
addition to aviation (EADS, Airbus), the country's strengths are in the energy sector
(including Total, EDF, GDF-Suez), in agriculture and food, in pharmaceutical products
and in chemicals and electronics. It is also the world market leader in the luxury segment, encompassing clothing, perfumes and food. In 2015, France was again host to
more than 84.5 million foreign guests, making it by far the most popular travel destination in the world. The French also hold a strong position in the insurance and financial
industry with some very large companies (Axa, Société Général, Crédit Agricole, etc.). A
state of emergency has been declared in France since the terrorist attacks in Paris in
November 2015, in which 130 people died. This was extended following a further attack
on 14 July 2016 in Nice, with more than 80 fatalities.
[FR1] Île-de-France
[FR2] Bassin-Parisien
[FR3] Nord – Pas-de-Calais
[FR4] Est
[FR5] Ouest
[FR6] Sud-Ouest
[FR7] Centre-Est
[FR8] Méditerranée
[FR9] Départements d’outre-mer
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Public admin, educ., human health, social
2 Trade, transport, accomodation, food serv.
3 Real estate activities
4 Industry (except construction)
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
66,4
633.187
2183,6
Value
22,9
18,2
13,3
12,8
12,4
20,4
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Food, beverages and tobacco
9,0%
12,1%
1 Germany
16,1%
Other transport equipment; confidential traffic of section 4,3%
7
11,6%
2 Spain
7,4%
Road vehicles (including air-cushion vehicles)
11,7%
8,5%
3 USA
7,3%
Medicinal and pharmaceutical products
6,6%
6,2%
4 Italy
7,2%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 5,9%
parts thereof 5(including
United Kingdom
non-electrical counterparts, n.e.s.,
7,1%
of electrical household-type
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
4,6%
n.e.s.
6 Belgium
6,9%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
4,5%
8
7 China
4,0%
Power-generating machinery and equipment
2,8%
4,2%
8 Netherlands
3,9%
Essential oils, resinoids and perfume materials; toilet, polishing
1,6% and cleaning
3,4% preparations
9 Switzerland
3,1%
Chemical materials and products, n.e.s.
2,2%
2,9%
10 Poland
1,7%
Value
-27,75
-62,284
36,247
10,347
-1,728
27,628
15,885
6,657
99,536
-107,944
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
8,9%
9,2%
1 Germany
19,6%
Food, beverages and tobacco
8,8%
8,9%
2 Belgium
10,9%
Petroleum, petroleum products and related materials 8,2%
7,7%
3 Italy
7,7%
Other transport equipment; confidential traffic of section 3,5%
7
6,2%
4 Netherlands
7,6%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 5,7%
parts thereof 5(including
Spain non-electrical counterparts, n.e.s.,
6,9%
of electrical household-type
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
5,3%
8
6 USA
5,5%
Medicinal and pharmaceutical products
5,3%
4,5%
7 China
5,4%
Articles of apparel and clothing accessories
3,3%
4,0%
8 United Kingdom
4,3%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
4,0%
n.e.s.
9 Switzerland
3,2%
Power-generating machinery and equipment
2,4%
3,2%
10 Poland
1,8%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Low-key efforts at
reform have not borne
any fruit so far
The unemployment rate has risen sharply in France since the start of the financial crisis,
reaching 10.4% in 2015. This is attributable to the rigid labour market and the high unit
labour costs, which have significantly weakened the country's competitiveness. The
socialist government came to power on the platform that it would get a grip on the endemic unemployment. However, the efforts at reform so far are still yet to bear fruit.
While the unemployment rate deteriorated after President Hollande took office, growth
rates also stagnated initially. It was not until 2015 that French economic growth rose
again to 1.3%. The European Commission forecasts growth of 1.3% for 2016 and 1.7%
for 2017. The slightly rising growth is expected to come primarily from lower energy
prices, personal spending and continuing low interest rates. The country's diminishing
attractiveness as a business location is nevertheless also reflected in the current Ease of
Doing Business ranking in the Doing Business report published by the World Bank, in
which France only takes 27th place. Among OECD countries, too, France only takes
19th place out of 32 countries.
NORD/LB Fixed Income Research
Page 29 of 109
Issuer Guide 2016 – Eurozone (EU19)
Agence France Trésor offers
three categories of standard
securities:
BTF
BTAN
OAT
Outstanding government
bonds
Agence France Trésor (AFT) is responsible for managing the national debt and treasury.
In 1985 the French treasury reformed government borrowing, resulting in a product
range based on three categories of standard securities: BTF (Bons du Trésor à taux fixe
et à intérêt précompté), BTAN (Bons du Trésor à taux fixe et à intérêt annuel) and OAT
(Obligations Assimilables du Trésor). Transactions in these three classes have been
settled through the Relit grande vitesse (RGV) system by Euroclear France since mid1998. The high liquidity of all French government bonds is boosted along the curve by
an active market in stripped bonds. France was the first European issuer (1991) to introduce the stripping and reconstruction of government bonds. According to information
provided by AFT, around 59.8% (06/2016) of all issued debt securities is held by nonFrench – at the end of 2014 this figure was almost 64%. AFT's current total of medium
and long-term securities (BTAN/OAT) amounts to EUR 1,493bn. New issues are announced in the Issue Calendar.
France currently has debt instruments in the amount of about EUR 1.628.6bn, of which
around 90% is allocated to the capital market and the rest to the money market (BTF).
The issue yields of French OAT have fallen steadily in real terms over the past few
years. On 11 July 2016 the yield on 10-year paper reached the lowest level ever recorded, at 0.094%. Like so many other countries, France is also benefiting from the low
interest rates and the ECB's bond purchase programme. These circumstances help with
the urgently needed budget consolidation.
EUR bonds France (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AA
Stable
Moody’s
Aa2
Stable
S&P
AAu
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
Term
3, 6, 12m
BTF
Security
BTF; BTF
Day count
act/360
Coupon type
zero
Cpn frequency
discounted
Issuance
weekly, Monday
Short-term financing needs are covered through the issue of BTF, which balance out the
timing-related mismatches between state revenue and expenditure. Each week, a BTF
with a three-month term is issued. If the Monday falls on a holiday, the issue is postponed until the next working day. Optionally, a half-year or whole-year BTF is auctioned.
Depending on finance requirements, some BTF may also be issued outside the dates
scheduled in the issue calendar, with terms of four to seven weeks. EUR 147.8bn is
currently spread across 26 BTF.
NORD/LB Fixed Income Research
Page 30 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
2, 5y
BTAN
Security
BTAN; BTNS
Term
7 to 50y
OAT
Security
OAT; FRTR
Term
5y
10y
10y
Security
BTANi; BTNS
OATi; FRTR
OAT€i; FRTR
Day count
act/act
Coupon type
fixed
Cpn frequency Issuance
annual
monthly, 3rd Thursday
BTAN are fixed-interest treasury notes with an annual coupon. They represent the
state's medium-term debt securities. On issue, they have a maturity of two or five years.
They are auctioned on the third Thursday of each month, as scheduled in a semi-annual
issue calendar that is published in advance. On this occasion the state issues at least
one BTAN line with a maturity of two or five years. At present a volume of EUR 44.2bn is
in circulation in now just two different securities. The small amount of paper that is currently still in circulation was issued in 2012 and therefore forms part of the five-year
category. All two securities have a fixed coupon and in total an outstanding volume of
more than EUR 20bn.
Day count
act/act
Coupon type
Fixed
Cpn frequency Issuance
annual
monthly, 1st Thursday
OAT are long-term fixed-interest French government bonds. They are issued with maturities of at least 7 years and not more than 50 years. With the exception of August and
December, OAT auctions are always held on the first Thursday of each month. The due
dates of OAT and the associated interest payments fall either on 25 April or 25 October.
EUR 1,436.7bn is currently in circulation.
Day count
act/act
act/act
act/act
Coupon type
I/L (FRCPXTOB)
I/L (FRCPXTOB)
I/L (CPTFEMU)
Cpn frequency
annual
annual
annual
Issuance
as required
as required
as required
Inflation-indexed bonds are offered in three variants (BTANi; OAT€i; OATi). OATi have
existed since mid-September 1998, while OAT€i were placed for the first time in October
2001. The respective bond is linked either to the French consumer price index ex tobacco (Bloomberg: FRCPXTOB) or to the harmonised consumer price index ex tobacco for
the eurozone (HCPI ex tobacco; Bloomberg: CPTFEMU). In both cases, investors receive a known fixed percentage as interest payment on the invested capital, plus a variable component based on the rate of inflation as defined in that particular case. The due
date of the OAT and the coupon date are set on the 25th of the month. Similarly, the
bonds in the medium maturities segment are usually also available in two variants
(BTANi, BTAN€i).
Inflation-indexed bonds:
OATi and BTANi
OAT€i and BTAN€i
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
French govt bonds – Yields (%)
-1
08.2015
2 Yr
10.2015
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 31 of 109
Issuer Guide 2016 – Eurozone (EU19)
National debt heading
towards 100% mark
France's national debt was 95.8% of GDP in 2015. In line with OECD projections, it is
moving towards the 100% mark in 2016. In 2009, when new borrowing was 7.2%, this
could still be justified by the measures needed to cope with the financial crisis. Even
seven years after the Lehman crash, however, the government has not yet managed to
adhere to the new borrowing limit of 3% of GDP as the figure is currently 3.5% of GDP.
Although the government had promised to adhere to the deficit limit as early as 2015,
the European Commission granted two further years of deferral in June of the same
year, when it became apparent that the country would once again fall foul of the 3%
limit. Even though the French economic model traditionally envisages a high level of
input by the state, its government spending ratio of around 57% (2015) indicates that
public spending is excessive. This even represents the second-highest figure in the EU,
after Finland. The mushrooming of government spending is partly the result of inordinate
bureaucracy, especially at regional and local level: for example, the French administration employs more staff than the whole of Germany, even though its neighbour has
almost 15 million more inhabitants. At 22%, the ratio of civil servants to the total number
of employed persons is about twice as high as Germany's. Total expenditure over the
next year is also likely to be much higher than originally budgeted, due to additional
investment in security following the attacks in Paris at the end of 2015 and higher costs
in the education sector.
Total revenue is growing
faster than expenditure
While total revenue has risen by EUR 204.3bn since 2009 (lowest point in the period
under review), total expenditure increased by EUR 142.8bn over the same period. This
can be seen in the positive trend in the budget balances over recent years (chart on the
left). This trend was also confirmed in 2015. Total revenue rose from EUR 1,141.8bn to
EUR 1,166.0bn, up 2.1%. Total expenditure only rose by 1.4% to EUR 1,243.4bn over
the same period. Social contributions (EUR 412.8bn) accounted for most of the total
revenue, followed by taxes on production and imports, with a volume of EUR 347.7bn.
Income and wealth taxes, which practically stagnated in 2014 year on year, rose again
by EUR 3.8bn to EUR 274.5bn. On the expenditure side, by far the biggest proportion
was attributable to monetary social security benefits and social transfers in kind. EUR
567.4bn was spent on this item in 2015, corresponding to 45.6% of total expenditure.
Thanks to the favourable refinancing conditions, the interest burden went down by EUR
2.3bn to EUR 44.1bn, despite the level of debt rising overall.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
0
90
-1
80
-2
70
-3
60
50
-4
40
-5
30
-6
20
-7
10
0
-8
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 32 of 109
Issuer Guide 2016 – Eurozone (EU19)
Reforms already
implemented
The Hollande administration is well aware of the urgent need to boost competitiveness
and employment and has already set some legislation in motion. Up to 2017, companies
are to receive tax relief of up to EUR 41bn through the "tax credit for competitiveness
and employment" (CICE) and the "responsibility and solidarity pact" initiated by the
government at the start of 2014. In August 2015 the "Law on Economic Growth and
Activity" also came into force. It includes a package of measures for opening up, liberalising and simplifying business (liberalisation of coach transport, shop opening on up to
12 Sundays, opening up regulated professions, etc.). Reporting requirements for small
enterprises are also being cut. Due to the disproportionate rise in the time spent on
bureaucracy, these requirements have so far hindered small firms in raising their headcount above 50. In order to prevent a possible defeat in the National Assembly, labour
market reform was pushed through parliament without a vote in the face of strong protest in July 2016. These reforms are designed to provide companies with more flexibility
and thus to stimulate employment. The French presidential election in 2017 will be the
11th election of the head of state of the French Republic. It will be held on 23 April 2017,
assuming the period in office of President François Hollande does not end before then.
Based on previous procedures, a run-off ballot can be expected (7 May).
Comment – Finances
France's economy is currently being supported by positive external factors. For example,
companies are continuing to benefit from the low interest rate policy pursued by the
ECB, the export sector is being supported by the weak euro, and the low price of crude
oil is increasing purchasing power. This in turn is boosting consumer demand. In the
short term this should help to stimulate economic growth and fulfil the forecasts, which
estimate GDP growth of 1.3% (2016) and 1.7% (2017) in the coming years. Additional
substantial reforms are nonetheless necessary to raise the French economy to a higher
level of growth over the long term. A higher level could take pressure off the national
budget by generating rising tax revenue and incurring lower expenditure on unemployment benefits. The resistance from the left wing of the government against further reform
should be food for thought. This was already apparent when the law on liberalising the
French service sector was passed in 2015 and during a ballot on controversial labour
market reform in July 2016. The distressed situation of PSA Peugeot Citroën, nuclear
power group Areva and Alstom will also have a negative impact on the budget, as they
could all possibly request state aid. For 2017 it has been agreed with the European
Commission to squeeze new borrowing down to 2.8%. By then, the government envisages savings of EUR 50bn. The fact that the EU Commission forecasts national deficits
of 3.4% (2016) and 3.2% (2017) in its Economic Forecast Spring 2016, despite the
agreement that had been reached, shows particularly clearly that the government has
already fallen behind in this respect. The OECD is also warning even at this stage that
achieving the objective could be jeopardised if no further reforms are carried through, or
negative external shocks occur.
Strengths & opportunities
Weaknesses & risks
+
High productivity
–
Rigid labour market
+
Dynamic demography
–
New borrowing remains above 3% limit
+
Strong global player
–
Excessive government spending
+
High FDI inflows
–
Tax burden dampens investment incentives
Well-developed infrastructure
–
Indirect labour costs put pressure on competitiveness
+
Strong research and education sector
–
Deficitary current account
+
High secondary market liquidity
–
AA credit rating
+
Source: NORD/LB Fixed Income Research
Comment – Bond market
Investors who put their money into French government bonds are placing their faith in
the commitments of the French government to reduce its budget deficit. Due to the international importance of the French economy and the high issue volume of its government
bonds, France is potentially a country in the AAA universe. On the bond market it has
rightly slipped into the AA segment.
NORD/LB Fixed Income Research
Page 33 of 109
Issuer Guide 2016 – Eurozone (EU19)
Italy
Economic and political activity lacking momentum
Italy consists of five NUTS 1
regions and 19 NUTS 2
regions:
The new regulations for calculating GDP make the trend in economic growth a lot less
dramatic than before the switch. GDP was EUR 1,636.4bn in 2015, up about 1.5% in
comparison with the previous year (2014: EUR 1,611.9bn). Italy’s economy therefore
achieved growth of 0.8% in 2015 for the first time since the slump in economic output of
around 9% against the pre-crisis high in 2008. Nevertheless, Italy remains the thirdlargest economy in the eurozone, accounting for 16% of GDP. A comparison of NUTS-1
regions makes it apparent that Italy's north [ITC: 32.4%; ITD: 23.1%] generates more
than half of economic output. Central Italy [ITE] contributes 21.6% to GDP, while the
structurally weak south [ITF] only generates 15.4%. The Mediterranean islands of Sicily
and Sardinia [ITG], with an economy based principally on tourism and agriculture, round
off Italy's GDP with a contribution of 7.4%. The most important urban conurbation in Italy
is the Industrial Triangle in the north-west [ITC], the points of which are formed by Turin
(Piedmont), Milan (Lombardy) and Genoa (Liguria). Milan is the leading financial, services and fashion centre. Cars, railways, aircraft and components for the aerospace
industry are manufactured in Turin. The north of Italy is also the cradle of the European
banking system. In central Italy [ITE], the economy is concentrated around the capital
city of Rome [ITE4]. Italy’s main trading partners are Germany and France. Following a
domestic political crisis (among other factors precipitated by Silvio Berlusconi’s resignation), Matteo Renzi has been Prime Minister of Italy since February 2014. During his
period in office so far, the young and ambitious Renzi has achieved more than his immediate predecessor. Major reform efforts such as a change in the voting law and a
more flexible labour market structure have already been successfully implemented by
the Renzi government. This is intended to make future governments more stable and
counteract political and economic stagnation.
[ITC] Nortd-Ovest:
[ITC1] Piemonte
[ITC2] Valle d'Aosta
[ITC3] Liguria
[ITC4] Lombardia
[ITD] Nord-Est:
[ITD1] Provincia Autonoma di Bolzano
[ITD2] Provincia Autonoma di Trento
[ITD3] Veneto
[ITD4] Friuli-Venezia Giulia
[ITD5] Emilia-Romagna
[ITE] Centro (IT):
[ITE1] Toscana
[ITE2] Umbria
[ITE3] Marche
[ITE4] Lazio
[ITF] Sud:
[ITF1] Abruzzo
[ITF2] Molise
[ITF3] Campania
[ITF4] Puglia
[ITF5] Basilicata
[ITF6] Calabria
[ITG] Isole:
[ITG1] Sicilia
[ITG2] Sardegna
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Industry (except construction)
3 Public admin, educ., human health, social
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
60,8
302.073
1636,4
Value
20,8
18,3
16,8
14,3
8,8
20,9
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
10,3%
n.e.s.
1 Germany
12,5%
Food, beverages and tobacco
9,0%
8,1%
2 France
10,4%
Road vehicles (including air-cushion vehicles)
11,7%
8,0%
3 USA
8,8%
Machinery specialized for particular industries
3,3%
5,7%
4 United Kingdom
5,5%
Medicinal and pharmaceutical products
6,6%
5,1%
5 Spain
4,8%
Articles of apparel and clothing accessories
2,1%
4,7%
6 Switzerland
4,7%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 4,6%
parts thereof 7(including
Belgium non-electrical counterparts, n.e.s.,
3,6%
of electrical household-type eq
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
4,2%
8
8 Poland
2,7%
Manufactures of metals, n.e.s.
3,1%
4,0%
9 China
2,6%
Iron and steel
2,8%
3,7%
10 Turkey
2,4%
Value
15,80
37,24
2,985
12,754
-7,813
-1,956
-24,38
-11,417
13,313
-21,729
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Food, beverages and tobacco
8,8%
9,6%
1 Germany
15,5%
Road vehicles (including air-cushion vehicles)
8,9%
8,7%
2 France
8,7%
Petroleum, petroleum products and related materials 8,2%
7,6%
3 China
7,7%
Medicinal and pharmaceutical products
5,3%
5,8%
4 Netherlands
5,6%
Crude materials
4,1%
5,2%
5 Spain
5,0%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,4%
parts thereof 6(including
Belgium non-electrical counterparts, n.e.s.,
4,6%
of electrical household-type eq
Iron and steel
2,5%
4,1%
7 Russia
3,9%
Gas natural and manufactured
2,5%
4,1%
8 USA
3,9%
Articles of apparel and clothing accessories
3,3%
3,8%
9 Switzerland
3,0%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
3,8%
n.e.s. 10 United Kingdom
2,9%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Italians bring air traffic
control to the stock market
Italy is pressing ahead with its privatisation projects. In autumn 2015, Poste Italiano, the
Italian post office, was partly privatised and brought onto the stock market – following the
sale of the second tranche this year, the Italian government holds just 35% of the
shares. In July 2016, there followed another part-privatisation, this time of the air traffic
control organisation ENAV. For 2017, the Italian government is planning to partly privatise the national railway operator FS. In doing so, the Italians would continue to meet the
demands of the European Commission and IMF to press on with privatisation. In the
current year alone it is projected that the state will rake in EUR 8bn from privatisation
efforts.
Brenner Base Tunnel –
a milestone for
Italian infrastructure
Forming part of a high-speed link from Berlin to Palermo, the Brenner Base Tunnel is
scheduled for completion in 2025. When completed, the 64 km-long tunnel will link
northern Italy with the Austrian city of Innsbruck and will enormously improve rail freight
transport, especially to Italy. In total, 40% of the project costs amounting to EUR 9bn are
being financed by the EU, with equal parts also borne by Austria and Italy.
NORD/LB Fixed Income Research
Page 34 of 109
Issuer Guide 2016 – Eurozone (EU19)
Five security types
represent the
Italian product range:
BOT
CTZ
CCT
BTP
BTP€is
Term
3y
5y
7y
10y
15 ,30y
BTP
Security
BTP; BTPS
BTP; BTPS
BTP; BTPS
BTP; BTPS
BTP; BTPS
Italy remains the biggest issuer in the eurozone. Securities divided into five categories
are issues on a regular basis by the Finance Ministry. In the short-term range there are
two different coupon-free instruments, differing primarily in their maturities: Buoni Ordinari del Tesoro (BOT) cover the maturity range below one year. Certificati del Tesoro
Zero Coupon (CTZ) are available in the two-year maturity range. In the medium to longterm investment spectrum (three years and more), the Italian Finance Ministry offers
Buoni Poliennali del Tesoro (BTP). There are also Certificati di Credito del Tesoro
(CCT), which are basically designed as FRN (reset index: 6M BOT yield) with a sevenyear maturity. Since 2010, CCTeu (Certificati di Credito del Tesoro eu) with five-year
maturity have come to the forefront, linked to 6M-Euribor. Auctions are conducted by
Banca d’Italia on behalf of the Treasury and announced in the Auction Calendar.
Day count
act/act
act/act
act/act
act/act
act/act
Coupon type
fixed
fixed
fixed
fixed
fixed
Cpn frequency
half-yearly
half-yearly
half-yearly
half-yearly
half-yearly
Issuance
monthly, mid-month
monthly, end of month
monthly, mid-month
monthly, end of month
as required
At EUR 1,540.5bn (64 bonds), fixed-interest BTP account for the majority of all bonds
issued by the Italian Treasury. BTP are issued as medium to long-term fixed-interest
bonds with maturities of 3, 5, 7, 10, 15 and 30 years. The auctions for 3, 7, 15 and 30year BTP are held in the second half of each calendar month. 5 and 10-year maturities
are auctioned in the last week of each month. The 7-year maturity was only added to the
range of maturities in October 2013. Since 1998 it has been possible for BTP to be
"stripped". The paper comprising the last coupon and principal is called hybrid strip. New
issues are announced as Medium and long-term announcements on the website.
EUR bonds Italy (EURbn) – Maturity profile
Ratings overview
400
LT
Outlook
Fitch
BBB+
Negative
Moody’s
Baa2
Stable
BBB-u
Stable
S&P
As at: 31 October 2016
Amount Outstanding (EURbn)
350
300
250
200
150
100
50
0
ITALY
ICTZ - CTZ
BOTS - BOT
CCTS - CCT
CCTS - BTP
BTPS - BTP€i
BTPS - BTP Italia
BTPS - BTP
2016
31,1
2017
0,4
24,4
91,0
30,0
2018
2,0
11,3
2019
3,1
2020
3,2
26,2
12,7
15,4
13,3
39,3
105,3
10,8
17,3
2021
1,4
2022
0,5
2023
2024
3,4
29,6
14,4
3,3
17,3
4,2
137,4
96,4
17,7
9,4
82,9
13,2
13,2
63,9
2025
0,2
2026
0,5
>2026
20,5
11,6
27,5
60,9
310,7
0,0
28,0
129,3
140,1
28,1
101,3
61,5
Source: Bloomberg, NORD/LB Fixed Income Research
Term
3m and flexible
6m
12 m
BOT
Security
BOT; BOTS
BOT; BOTS
BOT; BOTS
Day count
act/360
act/360
act/360
Coupon type
zero
zero
zero
Cpn frequency
discounted
discounted
discounted
Issuance
as required
monthly, end of month
monthly, mid-month
BOT generally run for six or twelve months, although the Italian Tesoro does indicate
that they can also be scheduled with a three-month maturity or flexibly (BOT flessibili)
between 1 and 12 months. Maturities of six and twelve months are issued at month-end
and mid-month, respectively, while three-month and flexible maturities are only issued
as required. 19 BOT (EUR 122.1bn) are placed at present. New issues are announced
on the website (BOT Announcements).
NORD/LB Fixed Income Research
Page 35 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
24m
CTZ
Security
CTZ; ICTZ
Day count
act/365
Term
7y
7y
CCT
Security
CCT; CCTS
CCT; CCTS
Term
5y
CCTeu
Security
CCTeu; CCTS
Coupon type
zero
Cpn frequency
discounted
Issuance
monthly, end of month
CTZ are also included in the short-term maturity range and are placed with a maturity of
24 months. In principle the product description from the Italian Treasury leaves scope for
flexible structuring of maturities. This option is not used at present. Three CTZ with a
total volume of EUR 35.7bn are currently available on the secondary market. The largest
single bond is currently ICTZ 0 08/30/17, with a volume of EUR 12.4bn. CTZ are issued
at the same time as BTP€i and have therefore been announced jointly since 2012
(BTP€I and CTZ Joint Announcements).
Day count
act/act
act/act
Coupon type
fixed
FRN (GBOTG6M)
Cpn frequency
half-yearly
half-yearly
Issuance
as required
monthly
CCT (CCTS) have been representing the medium maturities segment since 1991. CCT
are only issued with seven-year maturities. They are essentially FRNs whose performance is based on 6m BOT yield (Bloomberg: GBOTG6M). CCT were originally also
placed with maturities of two or ten years. There are currently only three CCT, totalling
EUR 22.3bn. The only CCT with a fixed coupon is CCTS 3 12/01/16 (EUR 14.6m). Issues have shifted to CCTeu since 2010.
Day count
act/360
Coupon type
FRN (EUR006M)
Cpn frequency
half-yearly
Issuance
monthly, mid-month
CCTeu have been coming to the fore since 2010. In this case, 6m-Euribor (Bloomberg:
EUR006M) acts as reset index and a maturity of five years is normal. As with CTZ,
CCTeu usually also have the option of adopting other maturities. Coupon fixing takes
place every six months. Nine of these bonds are available at present, together representing EUR 109.3bn. At around EUR 15.4bn, CCTS 0 12/15/20 is the biggest individual
bond.
Term
Security
Day count Coupon type
Cpn frequency
Issuance
5, 10, 15, 30y
BTP€i; BTPS
act/act
I/L (CPTFEMU)
half-yearly
monthly, end of month
4y
BTP Italia; BTPS act/act
I/L (ITCPIUNR)
half-yearly
twice per month
Index-linked bonds:
BTP€i are issued with maturities of 5, 10, 15 and 30 years. Their performance is linked
BTP€i
to the harmonised consumer price index ex tobacco for the eurozone (HCPI ex tobacco;
BTP Italia
Bloomberg: CPTFEMU). Apart from the three-year term, BTP€i therefore replicate the
maturities range of normal BTP. EUR 132.8bn (seven bonds) are issued at present.
BTP€i can also be "stripped". BTP Italia are designed as retail bonds with a maturity of
four years, in which the Italian inflation rate ex tobacco (Bloomberg: ITCPIUNR) acts as
the reference index. BTP Italia bonds (at present: EUR 90.0bn; also seven bonds)
should generally be regarded as an alternative to BTP€i. While new issues of BTP€i are
announced jointly with CTZ (BTP€I and CTZ Joint Announcements), BTP Italia bonds
have their own link as they appear less often on the market.
Term
Security
various
ITALY
Italy Government
International Bond (ITALY)
Day count
various
Coupon type
diverse
Cpn frequency
various
Issuance
irregular
Italy Government International Bonds (ITALY) are EMTN and are issued both in the
European single currency and in foreign currencies. In addition, these EMTN can also be
structured freely with regard to coupon type. As at the end of October, the Italian Treasury had issued a total volume of EUR 51.4bn, of which EUR 35.9bn was accounted for
by euro-denominated bonds. The biggest single issue is ITALY ITALY 5 1/8 07/31/24
(EUR 3.25bn). The equivalent of EUR 11.2bn is denominated in USD (only fixed coupons). The volume in GBP or Japanese yen (JPY) is much less. Further information on
issues on international markets is available on the website.
NORD/LB Fixed Income Research
Page 36 of 109
Issuer Guide 2016 – Eurozone (EU19)
4
4
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
Italian govt bonds – Yields (%)
-1
08.2015
10.2015
2 Yr
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
Revenue rose
by almost 1.0%
In 2015, total revenue rose by about EUR 7.4bn to EUR 784.0bn. This was mainly due
to taxes on income and wealth. These rose from EUR 238.0bn (2014) to EUR 242.4bn.
An increase was also generated in social contributions, totalling EUR 218.5bn in 2015.
Taxes on production and imports, which amounted to EUR 248.2bn as recently as 2014,
rose again to EUR 249.3bn and represent the largest source of revenue for Italy at the
same time. As in the previous year, there was a decline in other revenue, eventually
totalling EUR 73.8bn in 2015.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
140
0
120
-1
100
-2
80
-3
60
-4
40
-5
20
0
-6
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Expenditure at
new record level
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
On the expenditure side, EUR 826.4bn (2014: EUR 825.5bn) was reported in 2015. This
represents a new peak in the period covered by the review. Benefits and social transfers
rose by around 1.8% to EUR 377.2bn. In the public sector, expenditure on compensation of employees went down once again, from EUR 163.6bn (2014) to EUR 161.7bn.
Due to the improved conditions on the capital market, expenditure on payable interest
fell from EUR 74.3bn (2014) to EUR 68.4bn. This item still accounted for around 8.3% of
all expenditure. Other expenditure totalled EUR 190.1bn in 2015, remaining below the
previous year's level (EUR 194.1bn).
NORD/LB Fixed Income Research
Page 37 of 109
Issuer Guide 2016 – Eurozone (EU19)
Matteo Renzi is proposing a
"Marshall Plan for the south"
The Italian government is proposing a large-scale investment programme to boost the
country's competitiveness compared with that of the other EU member states. The state
intends to invest some EUR 7bn in expanding the broadband network. A further EUR
5bn for this expansion is set to come from private company contributions. Prime Minister
Renzi has ambitious goals in this respect, with the intention of developing the country
into one of the leaders in Europe. Major infrastructure projects are planned to revitalise
the economy in southern Italy. With the aid of EU regional development funds, around
EUR 30bn is earmarked for modernising the infrastructure network. One of these projects involves extending the high-speed rail line from Naples to Sicily. The government is
also prioritising projects to prevent earthquake damage and flooding. Italy's prime minister is also proposing tax relief for the coming years. Renzi also announced a cut in corporate taxes starting from 2017 and income tax from 2018. By loosening the austerity
programme in this way, the government is aiming to stimulate the economy and reduce
the high level of unemployment.
Comment – Public finances
In the wake of the financial and government debt crisis, the Italian economy lost a large
part of its international competitiveness. In Matteo Renzi, who has held power since
February 2014, Italy seems to have found a man of action, someone who wishes to
release the country from economic stagnation – and is capable of doing so. The first
tranche of reform initiatives has already been successfully implemented by the Renzi
government (change in voting law and more flexible labour market structure). The government is also pressing on with privatisation. The Italian post office and ENAV have
already been privatised and further companies will follow this model. Implementing these
projects would bring further relief to the state coffers and help to boost the urgently
needed reduction in debt. Public debt increased further despite a slight rise in revenue.
Italy has the second-highest debt ratio after Greece. Problematic aspects continue to
include the economic discrepancy between northern and southern Italy, the battle
against tax evasion and corruption, and overall unemployment of around 11.9% (although this rises substantially to 40% for under-25s). As in most EU countries, Italy also
needs wide-ranging reform of the pension system due to demographic trends. The proposed investment programme and tax relief could bring new momentum to Italy's economy. It remains to be seen how sustainable this strategy actually is, in view of the very
high debt ratio.
Strengths & opportunities
Weaknesses & risks
+
Internationally recognised industry clusters
–
Exports very much focused on eurozone
+
Specific development of southern regions
–
Economic North-South divide
+
Relatively large reserves for privatisations
–
High budget deficit and high interest burden
+
Reform efforts by the government
–
Reform bottleneck, corruption and shadow economy
+
Very high liquidity of bonds
–
High (youth) unemployment
–
Risks in banking sector
Source: NORD/LB Fixed Income Research
Comment – Bond market
On account of its international significance and professional presence on the bond market, Italy is a candidate for the AA universe, although currently it only represents medium-grade quality (Moody’s). Due to ECB liquidity injections, domestic banks have always
been able to perform their classic role as the demand side for Italy's government bonds.
In view of the payable interest of almost 10% of all expenditure, continuance of the low
interest rate environment is of key importance. Extensive new issues and repayments
are also on the agenda in 2017. For this reason, investors are inevitably faced with quite
important decisions on reinvestment. Italian BTP are among the top performers in the
eurozone. Italian government bonds remain attractive, despite generally falling risk premiums compared with alternatives with higher credit ratings. Investors should nonetheless be clear that any reduction in debt as required by the European Commission will
take a number of years. The looming referendum scheduled for 4 December is creating
huge uncertainty, with the number of market speculators increasing in the run up to polling day.
NORD/LB Fixed Income Research
Page 38 of 109
Issuer Guide 2016 – Eurozone (EU19)
Spain
Over 300 days without a government
Spain is divided into seven
NUTS 1 regions and 19 NUTS
2 regions:
The Kingdom of Spain is the fourth-largest economy in the eurozone in terms of GDP
(2015: EUR 1,081.2bn), behind Germany, France and Italy. Spain's GDP has now increased for the second time in succession, after the economy had produced negative
growth each year from 2011 to 2013. In 2016, too, the government expects positive
economic growth of 2.6%. When the real estate bubble burst (2007), the savings bank
sector in particular found itself in difficulties. In mid-2012, Spain submitted an application
to the EU with the aim of ensuring recapitalisation of distressed banks. The credit line
granted for bailing out the banks amounted to EUR 100bn, of which the country has
used around EUR 40bn. Although repayment was not scheduled until the next decade,
the Spaniards already started to make early repayments in 2014. This is possible on
account of the improvement in the country's economic situation. Catalonia (GDP share:
21.1%), Madrid (GDP share: 21.0%) and Andalusia (GDP share: 14.9%) are the most
important economic regions in Spain, generating a good half of GDP. Spain is the second-biggest car manufacturer in the EU after Germany, and is even the leader for commercial vehicles. The automotive industry is based chiefly in Catalonia (Martorell, Barcelona), Navarre (Pamplona), Galicia (Vigo) and Madrid. Although the Madrid region has
quite large manufacturing capacity, its GDP is produced principally by the service sector.
The south of Spain is dominated by agriculture (especially citrus fruits) and tourism.
Spain's balance of trade deficit is offset to a substantial extent by the positive invisible
trade balance. The most important trading partner is traditionally France, which is
Spain's biggest export destination (16.1%). Germany is in top spot for Spain's imports.
Like most eurozone countries, Spain is heavily dependent on imports of fossil fuels.
However, unlike western and central European countries, Spain gets neither gas nor oil
from Russia, but primarily from Algeria and France. With the expansion of the TransSaharan Pipeline, which connects Nigeria with the Algerian pipeline hub at Hassi R'Mel,
Spain as transit country could make other EU states more independent of Russian imports.
[ES1] Noroeste:
[ES11] Galicia
[ES12] Principado de Asturias
[ES13] Cantabria
[ES2] Noreste:
[ES21] País Vasco
[ES22] Comunidad Foral de Navarra
[ES23] La Rioja
[ES24] Aragón
[ES3] Comunidad de Madrid:
[ES30] Comunidad de Madrid
[ES4] Centro (E):
[ES41] Castilla y León
[ES42] Castilla-La Mancha
[ES43] Extremadura
[ES5] Este:
[ES51] Cataluña
[ES52] Comunidad Valenciana
[ES53] Illes Balears
[ES6] Sur:
[ES61] Andalucia
[ES62] Región de Murcia
[ES63] Ciudad Autónoma de Ceuta
[ES64] Ciudad Autónoma de Melilla
[ES7] Canarias:
[ES70] Canarias
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Public admin, educ., human health, social
3 Industry (except construction)
4 Real estate activities
5 Construction
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
46,4
505.944
1081,2
Value
25,9
18,3
17,5
8,4
7,8
22,1
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
11,7%
17,8%
1 France
16,1%
Food, beverages and tobacco
9,0%
15,0%
2 Germany
11,3%
Petroleum, petroleum products and related materials 4,0%
6,0%
3 Italy
7,5%
Medicinal and pharmaceutical products
6,6%
4,3%
4 United Kingdom
7,5%
Articles of apparel and clothing accessories
2,1%
4,2%
5 Portugal
7,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 4,0%
parts thereof 6(including
USA
non-electrical counterparts, n.e.s.,
4,6%
of electrical household-type
Crude materials
2,9%
3,8%
7 Netherlands
3,2%
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
3,4%
n.e.s.
8 Belgium
2,5%
Manufactures of metals, n.e.s.
3,1%
3,3%
9 Morocco
2,5%
Iron and steel
2,8%
3,1%
10 Turkey
2,0%
Value
7,97
-11,635
40,87
33,257
1,627
5,987
-25,285
9,89
50,335
-88,494
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
8,9%
12,3%
1 Germany
14,5%
Petroleum, petroleum products and related materials 8,2%
9,9%
2 France
11,8%
Food, beverages and tobacco
8,8%
9,8%
3 China
7,1%
Articles of apparel and clothing accessories
3,3%
5,3%
4 Italy
6,6%
Medicinal and pharmaceutical products
5,3%
4,9%
5 Netherlands
5,1%
Crude materials
4,1%
4,8%
6 United Kingdom
4,9%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,6%
parts thereof 7(including
Portugal non-electrical counterparts, n.e.s.,
4,0%
of electrical household-type
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
3,7%
n.e.s.
8 USA
3,6%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,4%
8
9 Belgium
3,3%
Organic chemicals
3,2%
2,9%
10 Algeria
2,3%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Seven provincial capitals
have been connected to the
AVE network
Europe's first solar power station (Plataforma Solar de Almería) and the biggest wind
farm (Tarifa) are located in Andalusia and off its coast respectively. Major Spanish ports
are La Coruña and Bilbao in the north, Valencia and Barcelona in the east and Cádiz
and Malaga in the south. The road system is well-developed. High-speed trains (Alta
Velocidad Española, AVE) connect the major cities. Seven provincial capitals, including
Zamora, León, Burgos, Palencia and Granada, were connected with high-speed rail
lines at the end of 2015. This year, the lines are to be extended in the north-western
Spanish provinces of Galicia and Asturias, and along the Mediterranean coast. Spain
would then have a 4,000-kilometre high-speed rail network in total. From a global perspective, this would be the second-biggest high-speed network after China.
NORD/LB Fixed Income Research
Page 39 of 109
Issuer Guide 2016 – Eurozone (EU19)
Spain focuses on two types
of security
Since the start of the 1980s, Spain has expanded its sources of refinancing and improved its risk diversification. Debt management is the responsibility of the General
Secretariat of the Treasury and Financial Policy, Tesoro. Iberclear was established in
1987 to settle securities transactions. Spain is currently represented on the bond market
with a volume of more than EUR 871.7bn, consisting mainly of Letras (money market),
Bonos (maturity up to 5y) and Obligaciones (maturity from 10y). According to the official
funding programme, a net funding volume of "now only" EUR 40bn has been announced
for 2016. In 2012, this figure had been more than twice as high. Of this amount, most will
have medium and long-term maturities and the rest will be issued as Letras. The gross
funding volume is stated as EUR 236.8bn. The issue yields on Spanish money market
and capital market paper are meanwhile falling further. The Tesoro's website provides
an Overview of all instruments. An Investor Presentation (April 2016) also contains upto-date information. The Banco de España also provides statistics and fundamental
data. The Spanish government provides information on public finances.
Fitch and S&P confirm their
ratings for Spain
In 2014, the rating agencies Moody’s and S&P raised Spain's credit rating from Baa3 to
Baa2 and from BBB- to BBB, respectively, averting a possible loss of investment-grade
status. Fitch and S&P confirmed their ratings in the spring of last year. Since then, further progress has been made on the ratings front. The outlook of all three major agencies also remains "stable". Accordingly, a (negative) change to the rating is not expected
for the time being. Standard & Poor's also retained the rating and outlook. The latest
reforms enable the country to benefit from the drop in oil prices, euro weakness and the
ECB's monetary policy, according to the rating agency.
EUR bonds Spain (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
BBB+
Stable
Moody’s
Baa2
Stable
S&P
BBB+
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
Privatisation project fills
Spain's state coffers
The partial privatisation of the Spanish airport operator Aena developed into a success
for the Spanish government at the start of 2015. Spain received around EUR 4bn for its
empty coffers by selling the shares. Initially, 44.6% of Aena stock was sold, with demand
coming mainly from institutional investors. Depending on further demand, the sale of
shares could be extended to 49%. This was the biggest privatisation of a financially
distressed eurozone country in more than ten years. Aena holds a stake in 46 airports
within Spain and more than 20 airports abroad. According to its own information, it handles 187 million passengers per year.
NORD/LB Fixed Income Research
Page 40 of 109
Issuer Guide 2016 – Eurozone (EU19)
Trend-setting political
decisions are pending in
Spain
Following the parliamentary elections in 2015, the coalition negotiations were unsuccessful in forming a government, so fresh elections were held on 26 June 2016. With
33% of the votes, the PP emerged as the strongest force and clear election winner. This
party in particular is under pressure due to various corruption scandals and the austerity
policy. The second-strongest force was the PSOE with 22.6% of the votes. The parties
finally agreed on a government at the end of October 2016: a resolution by the PSOE at
the end of October provides for recognition of a minority government under the current
prime minister, Rajoy. Rajoy's re-election brings an end to the political stalemate. The
potential consequences from the long period of political uncertainty could no longer be
assessed properly. It is not only that, so far in 2016, no legislation and reforms have
been passed, it is also the fact that even the budget for 2017 has so far not been approved. If Spain does not submit a budget to Brussels, severe penalties may be imposed, which could have a hard effect on the country which is already in deficit. The
independence movement in Catalonia is also a controversial matter. Following the referendum on Catalan independence in 2014, which was declared to be illegal by the Spanish constitutional court, it remains the goal of the current Catalan head of government to
make the region into an independent state by mid-2017. Catalonia has 7.5 million inhabitants. Bearing especially in mind the high economic importance of Catalonia for the
country as a whole, the current government would like to prevent a split at any price. It
remains to be seen how this "never-ending story" will develop.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
2, 3, 5y
Bonos; SPGB
act/act
fixed
annual
monthly
10, 15, 30y
Oblig.; SPGB
act/act
fixed
annual
monthly
Bonos y Obligaciones del
Bonos y Obligaciones del Estado (SPGB) is the general term for government bonds
Estado
covering the investment spectrum above a maturity of two years and offering annual
coupon payments. At present, around EUR 700.5bn (41 bonds) are issued. Bonos and
Obligaciones only differ with regard to their maturities. In the short to medium range of
maturities, the Spanish finance ministry issues Bonos with maturities of 2, 3 and 5 years.
Obligaciones are usually issued for 10, 15 and 30 years. Exceptions prove the rule (e.g.
SPGB 4.7 07/30/41 and SPGB 4.9 07/30/40). On the market itself and in the Issue Calendar published by the Spanish Treasury, Bonos y Obligaciones are generally not listed
separately. Stripping and reconstruction have been possible since July 1997.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
3, 6, 9, 12m
Letras; SGLT
act/360
zero
discounted
once a month
Letras del Tesoro
Letras del Tesoro (SGLT) were first issued in 1987. They are short-term discounted
treasury bills and are placed by auction with maturities of 3, 6, 9, 12 months. Letras with
a maturity of 18 months are no longer issued. They have been replaced by bonds with a
term of nine months. Thirteen Letras with a total volume of EUR 80.6bn are currently
available.
Term
Security
25y (EUR)
SPAIN
various (FX)
SPAIN
Spain Govt International
Bond (SPAIN)
Day count
act/act
various
Coupon type
fixed
various
Cpn frequency
annual
various
Issuance
06/05/2011
irregular
Spain International Govt Bonds comprise three euro-denominated bonds (e.g. SPAIN
5.6 05/06/36, with a volume of EUR 335m). Although foreign currency bonds may, in
principle, also be issued in this programme, the Spanish Treasury makes hardly any use
of this option. One USD bond accounts for about EUR 1.8bn, another one around EUR
270m. Other currencies are the yen (EUR 433m; three bonds) and the pound sterling
(EUR 280.7bn; SPAIN 5 ¼ 04/06/29). More information about non-euro debt is available
on the Tesoro website.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
10y
BONO€i; SPGBEI act/act
I/L (CPTFEMU)
annual
20/05/2014
Bonos y Obligaciones del
On 20 May 2014, the Tesoro issued a new inflation-indexed government bond (SPGBEI
Estado indexados a la
1.8 11/30/24), whose performance is pegged to the harmonised European consumer
inflación europea (SPGBEI)
price index ex tobacco (CPTFEMU).
NORD/LB Fixed Income Research
Page 41 of 109
Issuer Guide 2016 – Eurozone (EU19)
4
4
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
Spanish govt bonds – Yields (%)
-1
08.2015
10.2015
2 Yr
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
EU raises growth
forecast – unemployment
rate still falling
A budget balance of -5.1% of GDP (2014: -5.8%) and public debt of 99.2% of GDP
(97.7%) remain a heavy burden for Spain. The budget balance has been on the road to
recovery since the Budget Stability Law was passed on 12 April 2012, requiring the
central state and the autonomous regions and municipalities to have balanced budgets
starting from 2020. In contrast, sovereign debt rose steadily until 2014, only stabilising
last year. The European Commission forecasts Spanish economic growth of 2.6% for
2016 and 2.5% for 2017. The Commission foresees an improvement in all relevant indicators. Although the number of unemployed has also dropped significantly, it was still
22.1% in 2015. The EU Commission forecasts an unemployment rate of 20.0% in 2016.
This rate is certainly realistic as it was down to 20.1% in the second quarter of 2016.
This means that it had been falling continuously since the third quarter of 2013.
Significant growth in total
revenue
In 2015, total Spanish revenue rose to EUR 413.5bn (EUR 401.7bn). While social security contributions did not rise after 2008 due to the upheaval on the labour market,
growth was again achieved both in 2014 (EUR 130.1bn) and in 2015 (EUR 132.3bn).
They remain the biggest item ahead of production and import duties, which increased to
EUR 126.5bn compared to 2014 (EUR 119.3bn). Taxes on income and wealth also
posted growth of EUR 4.1bn in 2015 year on year to EUR 109.5bn. Other revenue was
EUR 45.1bn. The peak recorded in the previous year (EUR 47.0bn) was not achieved.
Gross debt vs. budget balance (% of GDP)
100
Total revenue vs. total expenditure (EURbn)
4
90
2
80
0
70
-2
60
50
-4
40
-6
30
-8
20
-10
10
0
-12
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Government consolidated gross debt (% of GDP, lhs)
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 42 of 109
Issuer Guide 2016 – Eurozone (EU19)
Further growth in total
expenditure
Having succeeded in reducing its total expenditure substantially in the previous two
years, Spain saw it rise again in 2015 by EUR 5.4bn to EUR 468.4bn (2014: EUR
463.0bn). This was primarily due to the other expenditure item, which went up by EUR
4.9bn to EUR 110.9bn. Compensation of employees also posted growth of EUR 3.8bn in
2015, to EUR 118.7bn. In contrast, interest payable was successfully reduced from EUR
35.3bn (2014) to EUR 33.1bn (2015) due to improving conditions on the capital market.
This represents 7.1% of total expenditure. Capital transfers also posted a fall of EUR
1.1bn to EUR 6.9bn. Monetary social security benefits and social transfers in kind, the
most important item in total expenditure accounting for 42.4%, managed to maintain
practically the previous year's level. In 2015, this item made up EUR 198.8bn.
Comment – Finances
The signs of ailment in the fourth-largest economy in the eurozone are waning. Following Spain's return to positive GDP growth in 2014, the country posted its highest economic growth since the start of 2007 in 2015. Although the EU Commission has lowered
its growth forecasts slightly for the current year (2.6%) and next year (2.5%) compared
with its forecast for 2015 (3.2%), they remain within a comfortable range. This is directly
due to an improved situation on the labour market, higher GDP growth and the austerity
programme. Continuing low prices for oil and intervention by the ECB could deliver additional impetus for personal spending and investment, resulting in even stronger growth
after 2017. At -5.1% of GDP combined with high public debt, the budget balance is a
heavy burden for the country. Despite an improvement in the unemployment rate to
22.1% in 2015, it is clear that additional measures are necessary to stabilise Spain further and make it competitive over the long term. The strained situation on the labour
market is also impacting on the expenditure side of the state's finances. Despite a successful reduction in 2015, the disproportionately high interest payments are putting additional pressure on the state coffers. Spain is traditionally strong in the export of agricultural products and foodstuffs. The Spanish economy can also rely on revenue from tourism. For years, the country has been unchallenged as having the highest positive balance of all countries in the eurozone in this respect. The construction industry remains a
problem area. Developments in the matter of forming the government and the outcome
of the independence movement in Catalonia will be trend-setters for the future of Spain.
Any split with Catalonia would have a significant impact on Spain's economy, since this
region is one of the most important in the country.
Strengths & opportunities
Weaknesses & risks
+
Good infrastructure
–
Exports very much focused on eurozone
+
Budget consolidation
–
High level of national debt
+
Tourism and export sector (especially cars)
stable
–
High interest burden for issuer
+
Above-average economic forecasts
–
Political instability
+
Reform of tax system
–
High unemployment, emigration of qualified
personnel abroad
Source: NORD/LB Fixed Income Research
Comment – Bond market
Even as recently as the start of 2013, it was questionable whether Spanish government
bonds would retain their investment-grade status. This risk has now been averted. In
recent months, Spain used the favourable timeframes for refinancing its public debt. It
will continue its policy of supplementing the volumes placed towards the short end of the
curve and in its mid-range in previous years by increased volumes issued for longer
maturities. By doing so, Spain will gain somewhat more breathing space with regard to
its future repayment obligations. Investors who can also cope with temporary setbacks
continue to see Spanish government bonds as relatively high-yield investments. For the
issuer itself, the interest payable has become a major burden for Spain since the start of
the financial crisis; this burden is only diminishing over time, as the ECB's asset purchasing programme takes effect.
NORD/LB Fixed Income Research
Page 43 of 109
Issuer Guide 2016 – Eurozone (EU19)
Netherlands
Natural gas capped further
The Netherlands is divided
into four NUTS 1 regions and
twelve NUTS 2 regions:
With GDP of EUR 678.6bn in 2015, the Dutch share of the eurozone's economic output
is around 6.5%. The service sector, which accounts for nearly four in every five jobs in
the Netherlands, is the country’s most important sector, accounting for just under 62% of
GDP. This is followed by industry at around 25% and the state at 11%, with agriculture
and fisheries bringing up the rear at nearly 2% of GDP. Looking at the twelve NUTS 2
regions, it is clear that South Holland [NL33; share of GDP: 21.4%] has the biggest
share of GDP ahead of North Holland [NL32; share of GDP: 20.1%], North Brabant
[NL41; share of GDP: 15.1%] and Gelderland [NL22; share of GDP: 10.1%]. The Netherlands is the fifth-largest export nation in the world after the People's Republic of China,
the USA, Germany and Japan. Its main trading partner remains Germany on the export
side, although in terms of imports China moved up to first place in 2015. As a result of its
central position in Europe and traditionally close links with the European and intercontinental markets, the Netherlands is a logistics hub for European and global goods traffic.
With cargo handling of around 466 million tonnes (2015), Rotterdam is the biggest port
in Europe and the only non-Asian port in the top ten largest ports in the world. The port
expects further growth and is continually investing to expand capacity. In terms of passenger numbers, Amsterdam Schiphol airport ranks in 14th place worldwide and is the
fourth-largest airport in Europe after London Heathrow, Paris Charles de Gaulle and
Frankfurt/Main. Air freight amounted to approximately 1.6 million tonnes in 2015. Dutch
infrastructure enjoys an exceptional reputation around the world. The Netherlands also
ranks as one of the most attractive countries for infrastructural investment. Furthermore,
the government intends to increase investment moving forward. The infrastructure
budget in 2016 was EUR 5.7bn (0.9% of GDP). Between 2017 and 2020, these funds
should rise by around 2% per annum. The network of roads and waterways as well as
bridges and locks are to be maintained in an energy-neutral fashion by 2030.
[NL1] Noord-Nederland:
[NL11] Groningen
[NL12] Friesland (NL)
[NL13] Drenthe
[NL2] Oost-Nederland:
[NL21] Overijssel
[NL22] Gelderland
[NL23] Flevoland
[NL3] West-Nederland:
[NL31] Utrecht
[NL32] Noord-Holland
[NL33] Zuid-Holland
[NL34] Zeeland
[NL4] Zuid-Nederland:
[NL41] Noord-Brabant
[NL42] Limburg (NL)
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Public admin, educ., human health, social
2 Industry (except construction)
3 Trade, transport, accomodation, food serv.
4 Professional, scientific, technical activities
5 Financial and insurance activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
16,9
41.542
678,6
Value
22,5
19,7
18,6
10,9
8,7
19,5
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Food, beverages and tobacco
9,0%
12,8%
1 Germany
24,0%
Petroleum, petroleum products and related materials 4,0%
9,5%
2 Belgium
11,5%
Telecommunications and sound-recording and reproducing
2,7%
apparatus7,8%
and equipment
3 United Kingdom
9,6%
Office machines and automatic data processing machines
2,0%
6,7%
4 France
8,6%
Crude materials
2,9%
5,2%
5 Italy
4,0%
Medicinal and pharmaceutical products
6,6%
5,1%
6 USA
3,9%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
4,7%
8
7 Spain
3,1%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 4,3%
parts thereof 8(including
Poland non-electrical counterparts, n.e.s.,
2,4%
of electrical household-type e
Other transport equipment; confidential traffic of section 4,3%
7
3,8%
9 Sweden
2,4%
Road vehicles (including air-cushion vehicles)
11,7%
3,3%
10 China
1,9%
Value
65,60
50,157
13,802
-3,697
8,783
8,717
-57,002
-7,288
-41,353
-22,485
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Petroleum, petroleum products and related materials 8,2%
12,9%
1 China
15,2%
Food, beverages and tobacco
8,8%
9,7%
2 Germany
15,1%
Telecommunications and sound-recording and reproducing
4,1%
apparatus9,0%
and equipment
3 Belgium
8,5%
Office machines and automatic data processing machines
3,0%
6,6%
4 USA
8,0%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
5,2%
8
5 United Kingdom
4,9%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,8%
parts thereof 6(including
France non-electrical counterparts, n.e.s.,
3,9%
of electrical household-type e
Crude materials
4,1%
4,7%
7 Russia
3,4%
Road vehicles (including air-cushion vehicles)
8,9%
4,4%
8 Norway
2,5%
Medicinal and pharmaceutical products
5,3%
4,1%
9 Japan
2,4%
Other transport equipment; confidential traffic of section 3,5%
7
3,7%
10 Italy
2,1%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015.
Earthquake risk Netherlands continues
to cap natural
gas production
The Dutch will further cap their natural gas production due to a large number of small
earthquakes in the Groningen production region. The total production volume for 2016 is
set to be 27 billion cubic metres – around 6 billion cubic metres below the level recorded
in 2015. Revenue from natural gas will fall by EUR 1.5bn on the back of this development. In the coming year, too, a further reduction is expected - for 2017, a cutback in the
total production volume to 24 billion cubic metres has been set in stone. Overall, production will have fallen by more than a third against the 2014 level. People and politicians in
the province, which is on the border with Germany, had already called for a steep cut in
production. The Dutch are the largest producers of natural gas in Europe after Norway.
According to experts, if production had continued unabated there would have been an
increased risk of earthquakes up to 5.0 on the Richter scale. From 2020 onwards, dpa
predicts that natural gas production will be hugely capped. Importers of Dutch natural
gas, for example Germany, will have to find new commodities trading partners in future.
NORD/LB Fixed Income Research
Page 44 of 109
Issuer Guide 2016 – Eurozone (EU19)
Netherlands slowly
recovering from
Property crisis
The price slide in the real estate sector has halted, but development still varies considerably from region to region. Overall it can be claimed that a recovery in house prices
has been in evidence since the beginning of 2014. In real terms, house prices rose by
around 4.5% year on year in 2015. The first two quarters of 2016 confirmed this trend.
DSTA is the state's debt
management agency
The DSTA (Dutch State Treasury Agency) acts as the debt management body. The
primary focus of the DSTA is on the issue of two types of security. On the money market
there is the Schatkistpapier (Dutch Treasury Certificate; DTC), while Staatsobligaties
(Dutch State Loans; DSL) are issued on the capital market. As at the end of October, the
Dutch treasury reported a total volume of outstanding debt securities amounting to EUR
358.6bn, of which EUR 18.3bn was attributable to DTC and EUR 320.5bn to DSL. In
addition to these two standard bonds, DSL in foreign currencies, private loans and miscellaneous round off the product portfolio. Refinancing requirements have increased
steadily in recent years. In 2016, funding of EUR 78.8bn is scheduled to be raised, of
which EUR 28bn–33bn is attributable to money market products and EUR 25bn–30bn to
capital market products. Redemptions account for EUR 28.2bn. Detailed information on
Outlook 2016 including finance planning is available on the DSTA website.
EUR bonds Netherlands (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AAA
Stable
Moody’s
Aaa
Stable
AAAu
Stable
S&P
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
Standard & Poor’s award
AAA rating again
After losing its top rating from Standard & Poor’s at the end of 2013 following a burst
property bubble, the rating agency reassigned AAA status to the Netherlands in November 2015. The Dutch economy is in a dynamic recovery phase and the economic
outlook appears to be better than initially expected.
NORD/LB Fixed Income Research
Page 45 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
3m
DTC; DTB
6, 9, 12m
DTC; DTB
Schatkistpapier Dutch Treasury Certificate
(DTC)
Day count
act/360
act/360
Coupon type
zero
zero
Cpn frequency
discounted
discounted
Issuance
twice per month
once per month
Dutch Treasury Certificates (DTC; Bloomberg: DTB) are the Dutch money market securities. Auctions are on the agenda twice a month (1st and 3rd Monday). There were two
significant factors of uncertainty for 2015 which adversely affected money market volumes. First, the quantity of cash collateral increased in 2014 as a result of lower interest
rates and the composition of the swap portfolio. Second, it remains difficult to predict the
development of cash collateral for the year as a whole. This uncertainty is set to remain
a factor this year as well as in the following year too. All DTC are announced in the quarterly issuance calendar. There are currently six DTC, totalling around EUR 18.3bn.
Term
Security
Day count
Coupon type
Cpn frequency Issuance
3, 5, 10y
DSL; NETHER
act/act
fixed
annual
1–3 times per year
20, 30y
DSL; NETHER
act/act
fixed
annual
Every 5 or 6 years
Staatsobligatie In the medium and long-term segment, the Netherlands uses Staatsobligaties, known
Dutch State Loan (DSL)
internationally as Dutch State Loans (DSL; Bloomberg NETHER), for refinancing purposes. There are currently 27 instruments with a total volume of approximately EUR
320.5bn. Auctions for DSL are announced in the quarterly issuance calendar. Various
taps were announced during 2016. In the case of maturities up to and including 10y, the
DSTA is required to raise the volumes to EUR 15bn within one year, while the target
figure for 30y DSL is EUR 10bn. Ultra-long maturities are only issued in a 5 to 6-year
cycle. Stripping of DSL was introduced in 1999.
Dutch govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06-2015
-1
08-2015
2 Yr
10-2015
12-2015
3 Yr
02-2016
5 Yr
04-2016
7 Yr
06-2016
10 Yr
08-2016
10-2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 46 of 109
Issuer Guide 2016 – Eurozone (EU19)
CPB forecasting
economic growth
The Netherlands’ Central Planning Bureau (CPB) has forecast an upturn in the economic situation over the next few years. While GDP in 2013 declined in line with the year
previous by 0.5%, it recovered by 1.0% in 2014 and by as much as 2.0% in 2015. For
the current year, the CPB is predicting growth of 1.8%. In 2017, economic growth of
2.1% is a realistic target.
Dampened growth in total
state revenue in 2015
In 2015, total revenue for the Netherlands amounted to EUR 292.0bn, up by around
EUR 1.1bn on 2014 (EUR 290.9bn). Revenue from taxes on income and wealth developed particularly pleasingly. These surged from EUR 71.0bn (2014) to EUR 78.3bn
(2015). In contrast, social contributions were down EUR 2.0bn year on year, falling from
EUR 101.8bn in 2014 to EUR 99.7bn in 2015. Taxes on production and imports rose
slightly by EUR 0.6bn. There was a significant decline of EUR 4.8bn in other revenue. In
this regard, a total of EUR 38.2bn (2014: EUR 43.0bn) was generated in 2015.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
1
90
0
80
-1
70
60
-2
50
-3
40
30
-4
20
-5
10
0
-6
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Falling government
expenditure following
record high
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
After the Netherlands’ total expenditure was at a record high of EUR 306.5bn in 2014, it
fell in 2015 again to EUR 304.4bn. The Netherlands managed to reduce expenditure for
nearly all items, with only benefits and social transfers again recording an increase.
These have risen continually in the period under review and hit a new high of EUR
149.5bn in 2015. The most severe decline was recorded by other expenditure. After
Eurostat reported a value of EUR 85.6bn in 2014, the equivalent value for 2015 was
EUR 83.2bn. Despite slight fluctuations, compensation of employees has remained
constant since 2010. The costs here for last year stand at EUR 60.0bn. There is a similar situation with regard to capital transfers, which at EUR 3.5bn in 2015 remained largely constant in comparison with the previous year. Payable interest (2015: EUR 8.2bn)
fell in 2015 to around 2.7% of total expenditure. This is the lowest it has been for 14
years and underscores the current phase of low interest rates in Europe and favourable
refinancing costs in the money and capital markets.
NORD/LB Fixed Income Research
Page 47 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
The Netherlands is an export-oriented, service economy with strong international links.
We view the country's role as a hub in the eurozone through the port of Rotterdam as
positive, and this is likely to ensure growth in revenue again in the line item taxes on
production and imports. Assuming that the growth rates forecast by the CPB materialise,
we see a rising trend on the revenue side. The government's investment programme in
particular suggests that the economic growth will continue to gain momentum. In the long
term however, the capping of natural gas production in the Groningen region will lead to
a decrease in exports of these products. Another positive factor is the re-privatisation of
ABN AMRO, which had been nationalised during the financial crisis. Around EUR 3.3bn
flowed back into the Dutch public purse following the second-largest IPO across Europe
in 2015. The setback for the governing parties in the Netherlands suffered in the regional elections in March 2015 has led to fears of political deadlock. While there have been
no explicit signs of this scenario becoming a reality since then, the risk still lingers. Further risks are still evident in the real estate industry as well as in the pension system and
healthcare sector.
Strengths & opportunities
Weaknesses & risks
+
Logistics hub in Europe
–
Exports mainly to EU trading partners
+
Broad range of import trading partners
–
Costs of healthcare and pensions
+
Relatively good debt figures
–
Heavily dependent on global market
+
Balanced tax system
–
Limited liquidity of DSL on secondary market
+
Own energy resources (especially natural gas)
–
Unstable real estate market
+
Infrastructure expansion
–
Demographic change
–
Capping of natural gas production
Source: NORD/LB Fixed Income Research
Comment – Bond market
Emboldened by S&P upgrading it to its highest rating, we still regard Dutch government
bonds as a solid investment within the AAA segment, although only a low yield is on
offer. On the one hand, the Netherlands benefits from low funding costs. On the other, a
return of investors' risk appetite could push the relative appeal of the Netherland's excellent rating into the background.
NORD/LB Fixed Income Research
Page 48 of 109
Issuer Guide 2016 – Eurozone (EU19)
Belgium
Key reforms despite resistance
Belgium is divided into three
NUTS 1 regions and eleven
NUTS 2 regions:
With GDP of EUR 409.4bn, Belgium is the sixth largest economy in the eurozone, contributing approximately 4.0% (2015) to economic output. Belgium was a founder member of the European Coal and Steel Community (1952) and the EEC (1958). Brussels is
home to the headquarters of several major institutions (including the European Commission). The centre-right government coalition led by Prime Minister Charles Michel was
sworn in on 11 October 2014 and holds a clear majority in the Belgian Chamber of Representatives, with 85 of the 150 seats. Despite strong resistance from the opposition left
and trade unions, this comfortable majority has already enabled the government to carry
through a number of significant economic and fiscal reforms (such as the consolidation
of the Belgian budget and comprehensive pension reforms). Economically, the Flemish
north of the country [BE2; share of national GDP: 58.3%] has now clearly outstripped
the Walloon south [BE3; 23.4% of GDP]. This is fanning the flames of separatism that
have already been smouldering for some time. The Brussels-Capital Region [BE1] contributes 18.3% to GDP. The Belgian economy is largely dominated by the service sector,
accounting for around 70% of GDP, while the manufacturing industry only generates
around 15% of GDP. Further important economic sectors include the pharmaceutical,
chemicals and food industries. The main trading partners are France, Germany and the
Netherlands. The area around Antwerp is characterised by the oil, chemicals, automotive, iron and steel industries. The port city is also the world’s leading centre for the
diamond trade (SITC 66). The key industries in Wallonia are food and electrical engineering, while machinery, transport equipment and electrical engineering are located in
the region of the capital, Brussels. A large number of foreign companies have branches
in Belgium due to the positive aspects of its location. Internationally, Belgium became
the focus of media attention in 2016: on 22 March 2016, suicide bombers carried out
bloody attacks in Brussels Airport and the Maelbeek metro station that serves the European quarter, killing 32 people and injuring a further 340, some very seriously. The terrorist group Islamic State (IS) claimed responsibility for these attacks.
[BE1] Region de Bruxelles-Capitale:
[BE10] Région de Bruxelles-Capitale
[BE2] Vlaams Gewest:
[BE21] Antwerpen
[BE22] Limburg (B)
[BE23] Oost-Vlaanderen
[BE24] Vlaams-Brabant
[BE25] Prov. West-Vlaanderen
[BE3] Région Wallonne:
[BE31] Brabant-Wallon
[BE32] Hainaut
[BE33] Liège
[BE34] Luxembourg (B)
[BE35] Namur
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Public admin, educ., human health, social
2 Trade, transport, accomodation, food serv.
3 Industry (except construction)
4 Professional, scientific, technical activities
5 Real estate activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
11,3
30.528
409,4
Value
23,3
19,8
15,6
13,2
8,9
19,2
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Medicinal and pharmaceutical products
6,6%
11,7%
Road vehicles (including air-cushion vehicles)
11,7%
10,4%
Food, beverages and tobacco
9,0%
9,5%
Organic chemicals
3,0%
7,4%
Petroleum, petroleum products and related materials 4,0%
6,9%
Plastics in primary forms
2,3%
5,1%
Non-metallic mineral manufactures, n.e.s.
1,6%
4,8%
Iron and steel
2,8%
3,5%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
3,3%
8
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
3,2%
n.e.s.
1
2
3
4
5
6
7
8
9
10
Exports (Countries)
Germany
France
Netherlands
United Kingdom
USA
Italy
Spain
India
Poland
China
Weight
16,9%
15,8%
11,6%
9,0%
6,1%
5,1%
2,7%
2,2%
1,9%
1,7%
Value
-7,26
-8,289
7,898
-6,122
2,174
12,282
5,352
16,658
23,324
-37,051
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Road vehicles (including air-cushion vehicles)
8,9%
11,4%
Medicinal and pharmaceutical products
5,3%
10,4%
Petroleum, petroleum products and related materials 8,2%
9,0%
Food, beverages and tobacco
8,8%
8,4%
Organic chemicals
3,2%
8,2%
Non-metallic mineral manufactures, n.e.s.
1,4%
5,0%
Crude materials
4,1%
4,1%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,1%
8
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
3,1%
n.e.s.
Gas natural and manufactured
2,5%
2,9%
1
2
3
4
5
6
7
8
9
10
Imports (Countries)
Netherlands
Germany
France
USA
United Kingdom
Ireland
China
Italy
Russia
Japan
Weight
17,0%
12,7%
9,6%
8,5%
5,1%
4,8%
4,3%
3,9%
2,4%
2,3%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015.
Belgium’s economy focusses Belgium’s central location in combination with its excellent intra-European transport links
on pharmaceuticals sector
(roads, rail, air, sea and inland waterways) is a major competitive advantage. A number
and petrochemicals
of non-European companies handle distribution of their goods throughout the European
continent via the port of Antwerp. Pharmaceutical products made in Ireland, in particular,
are preferentially distributed via Antwerp. In a European ranking (container handling),
the Belgian port city is third, behind Rotterdam and Hamburg. Another major Belgian
port is Zeebrugge (West Flanders, near Bruges). Liège in French-speaking Wallonia is
the second-biggest inland port in Europe, after Duisburg. It is also the main hub in Belgium for air freight, while passenger flights are handled primarily via Brussels. Belgium
is connected both to the French TGV network and to the German ICE rail system.
NORD/LB Fixed Income Research
Page 49 of 109
Issuer Guide 2016 – Eurozone (EU19)
Belgium is funded chiefly by
OLO and BTC
The Belgian Debt Agency provides information in three languages on its website about
the kingdom’s debt securities. At the end of October 2016, Belgium had a total volume
of EUR 358.9bn outstanding. At EUR 322.4bn, OLO (obligations linéaires, lineaire obligaties) represent the country’s main source of funding. According to information provided by the Debt Agency (Funding 2016), EUR 36.5bn of this amount will become due
in 2016. The money market financing of the Belgian state is currently assured through
the placement of twelve Belgian treasury bills (BGTB; EUR 27.7bn). Detailed information
can be found in the Issue Calendar. Investors can also find a commentary on Belgian
debt securities in the Review 2013, 2014 Outlook. Additional publications are also
available for previous years.
EUR bonds Belgium (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AA
Negative
Moody’s
Aa3
Stable
S&P
AAu
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
Term
max. 30y
5y
OLO
Security
OLO; BGB
OLO; BGB
Day count
act/act
act/360
Coupon type
fixed
FRN (EUR003M)
Cpn frequency
annual
quarterly
Issuance
monthly, last Mon.
irregular
OLO (Bloomberg: BGB) are medium to long-term government bonds, which are usually
placed via auction on a monthly basis. Ten auctions were once again scheduled this
year. Apart from August and December, they are held in a four-week cycle. The respective issue is scheduled for Mondays. In special cases, for example the issuance of a new
series, syndication is used instead of an auction. At present there are 28 OLO series, of
which only one (BGB 0 05/02/18; EUR 2.5bn) is issued as FRN. In the past, most series
represented a volume of at least EUR 11bn. In 2013, the OLO maturity date was shifted
from the previously usual dates of 28 March or 28 September to 22 June. Stripping and
reconstruction of OLO have been possible since 1992. The buy-back of Belgian OLO
has been announced as OLO buy-backs. A special feature is the ORI auction (Optional
Reverse Inquiry Auction), in which selected dealers get the opportunity to acquire offthe-run OLO. These auctions, which are used when secondary market liquidity is low,
are generally scheduled for the second Friday in a month.
NORD/LB Fixed Income Research
Page 50 of 109
Issuer Guide 2016 – Eurozone (EU19)
Borrower’s note loans
(Schuldscheindarlehen;
SSD) *
*SSD: not securities, but loans
securitised by means of
borrower’s note
Term
3m (EUR)
12m (EUR)
generally <3m (FX)
Security
BTC; BGTB
BTC; BGTB
BTB; BGTB
Belgian treasury certificates
(BTC) and Belgian treasury
bills (BTB)
Term
Security
3, 5, 8y
BGBRT
Belgium government retail
bond (BGBRT)
Term
varies
BELG
The Belgian treasury issues borrower’s note loans (SSD) specifically for German institutional clients (insurance companies, pension funds). The volume of SSD usually remains
low in order to avoid competing with the issue of OLO. Transactions up to EUR 55m
were usual in the course of the year. The peak in 2012 was EUR 135.5m (maturity:
20 January 2033), while EUR 3m (maturity: 5 July 2028) represented the lower boundary. A total of EUR 114m was issued in 2014 as a whole, while EUR 139m was placed in
January 2015 alone. Due to the “no mark-to-market-rule”, which enables accounting
treatment at a constant price (usually 100%), this form of investment is more attractive
than the usual government bonds, especially in the current low interest rate environment, and has even gained in appeal.
Security
BELG
Day count
act/360
act/360
act/360
Coupon type
zero
zero
zero
Cpn frequency
discounted
discounted
discounted
Issuance
twice a month
once a month
irregular
With regard to money market paper, Belgians make a distinction between treasury certificates (BTC) and treasury bills (BTB). These instruments are comparable in terms of
their legal and fiscal status. The main difference is that BTC are denominated solely in
euro and are issued through auctions on the basis of standardised characteristics. In
contrast, BTB may additionally be issued in the currencies of other OECD member
states and offer the advantage of being “tailor-made” to meet specific client requirements. Foreign currency BTB have existed since mid-1996 and are therefore older than
the BTC programme. BTB usually have a term of less than three months, while BTC are
offered with maturities of three, six and twelve months. While the three-month BTC are
available every two weeks, the other two maturities are placed on an alternating basis
(monthly).
Day count
act/act
Coupon type
fixed
Cpn frequency
annual
Issuance
as required
For retail customers, the Belgian Debt Agency offers a whole series of small-volume
government bonds. These are denominated in euro without exception and offer a fixed
coupon. With regard to characteristics, this paper is comparable with OLO. So far, instruments with maturities of three, five or eight years have been issued. Seven bonds
with a ten-year maturity have been added since 2014. By far the biggest bond is
BGBRT 4 12/04/16, with a volume of EUR 4.7bn. As only four of the 42 BGBRT have a
volume exceeding EUR 100m, the median of all BGBRT is a very low EUR 13.27m.
Day count
various
Coupon type
various
Cpn frequency
various
Issuance
as required
In every respect, the EMTN programme includes extremely flexible financial instruments
issued by the Belgian Treasury, with maturities between one month and 100 years. In
the amount of EUR 100m on 21 April 2016 (BELG 2.3 05/06/2116). In addition to eurodenominated issues, other currencies of an OECD member are also permitted. The
coupon type also enjoys maximum flexibility.
NORD/LB Fixed Income Research
Page 51 of 109
Issuer Guide 2016 – Eurozone (EU19)
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
Belgium govt bonds – Yields (%)
-1
08.2015
10.2015
2 Yr
12.2015
02.2016
4 Yr
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
Belgium stays within new
borrowing limit
In 2015, Belgium was at least able to satisfy one Maastricht criterion. Belgium’s new
borrowing declined to -2.6% of GDP (2014: -3.1%), while government debt only improved slightly to 106.0% of GDP (2014: 106.5%).
Reform of budget
consolidation has begun
Belgium has set out the most important steps for budget consolidation in its stability
programme. Further strategically important details can be found in the Belgian reform
programme, both at national level and specific to each region. The new government has
also introduced a reform process, intended to improve Belgium’s competitiveness and
consolidate the public finances.
Government debt vs. budget balance (% of GDP)
120
Total revenue vs. total expenditure (EURbn)
1
0
100
-1
80
-2
60
-3
40
-4
20
-5
0
-6
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Social contributions and
taxes on income, wealth etc.
each account for one third of
all revenue
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
At EUR 210.3bn in 2015, Belgium exceeded the previous year’s figure (2014: EUR
208.2bn) and therefore obtained the highest value in the whole period under review.
Income from social contributions increased from EUR 66.7bn in 2014 to EUR 67.9bn in
2015, making this the most important revenue item alongside taxes on income, wealth
etc. (EUR 67.9bn), which are the focus of the Belgian tax system. Revenue from these
direct taxes rose by around EUR 0.9bn year on year. The third pillar of the country’s
revenue, taxes on production and imports, posted an increase to EUR 52.9bn (2014:
EUR 52.0bn), which means they have always increased since 2009. Other revenue
declined from EUR 22.6bn (2014) to around EUR 21.7bn.
NORD/LB Fixed Income Research
Page 52 of 109
Issuer Guide 2016 – Eurozone (EU19)
Expenditure trend
considerably better
than in previous year
The expenditure trend was considerably better when compared with the previous year.
At EUR 221.0bn (2014: EUR 220.6bn), expenses only increased slightly and were significantly lower than income. However, monetary social benefits and social transfers in
kind amounted to EUR 103.9bn (2014: EUR 101.3bn), which is the greatest increase in
terms of expenditure. This was offset by the decline of almost EUR 1.9bn in spending on
capital transfers to EUR 5.1bn (2014: EUR 7.0bn). The second-greatest cost block was
employee remuneration, which was only slightly up on the figure of EUR 50.9bn for
2014, at EUR 51.3bn. Against the background of continued favourable conditions on the
capital markets, the payable interest item was reduced to EUR 11.9bn in 2015 (2014:
EUR 12.7bn) and consequently accounted for just 5.4% of all expenditure (2014: 5.8%).
Other expenditure amounted to EUR 48.7bn and therefore remained constant in comparison with the previous year.
Comment – Public finances
The aim of the reforms being implemented by the coalition government is to improve the
financial situation (pension from age of 67, no dynamic salary adjustment), which should
be viewed positively. In particular, the previously resolved reduction in statutory employer’s social security contributions by 2019 will make Belgium’s labour market more competitive. However, the organised resistance from the opposition and trade unions was
significant and it is uncertain to what extent it will be possible to further implement reforms. The economic outlook is generally in fact positive, with Belgium achieving real
GDP growth of approximately 1.4% in 2015. Growth of 1.2% is predicted for 2016 and of
1.6% for 2017. The dominance of Flemish people is a conspicuous element of the government and there can no longer be talk of a fair balance between the language groups.
The problems of the language dispute have therefore not been resolved for the long
term. The European Commission is critical of the regional structures, which restrict not
only the efficiency of the public administration, but also labour mobility. The debt level
has largely remained constant when compared with the previous year. In an EU 19
comparison, it continues to be substantially above the average of 91.9% of GDP, which
is why Belgium’s budget policy will remain under close scrutiny. However, the fact that
the financial balance has been developing positively for many years and now complies
with the Maastricht criterion means it is rather unlikely EU institutions will impose sanctions.
Strengths & opportunities
Weaknesses & risks
Logistical interface in Europe
–
Separatism jeopardises continued existence of
Belgium
+
Worldwide diversified trading partners
–
Wallonia’s competitiveness is low
+
Reform process initiated
–
Government debt totals 106.0% of GDP
+
Involvement in international cooperations
–
Inefficiencies in regional structures
+
Balanced tax system
–
Strong focus on direct taxes
+
Attractive risk premium versus Bunds
–
Strong resistance against reform plans
–
Uncertainty following terrorist attacks
+
Source: NORD/LB Fixed Income Research
Comment – Bond market
In the AA segment, we regard Belgian government bonds primarily as an alternative to
more liquid French government bonds. Due to the successful formation of a government
in 2014 and the fading sense of crisis around the world, Belgian spreads had normalised
to a large extent in recent years. However, following the parliamentary elections in May
2014, another political stalemate cannot be ruled out. As a result, the risk premiums on
Belgian government bonds could again come under pressure. However, this will not be
the case in 2016 as the ECB purchase programme alone has caused yields on the Belgian bond market to fall on a lasting basis.
NORD/LB Fixed Income Research
Page 53 of 109
Issuer Guide 2016 – Eurozone (EU19)
Austria
Austria presses ahead with Heta wind-up
Austria is divided into three
NUTS 1 regions and nine
NUTS 2 regions:
With GDP of EUR 337.3bn (2014: EUR 329.3bn), Austria accounted for around 3.2% of
the eurozone’s GDP in 2015. Austria has been a member of the EU since 1995. Small
and medium-sized enterprises are systematically promoted and are characteristic of the
Austrian economy. Machinery and transport equipment (SITC 7) dominate foreign trade.
The main trading partner by far is Germany, followed by Italy and the USA. Vienna
[AT13] is the undisputed leading service and financial centre and, at 25.6%, contributes
over a quarter of the nation's GDP. The Vienna Basin is the most important economic
conurbation and is home to several different industries (including chemicals, metalwork,
food and paper). In terms of contribution to the nation's GDP, Vienna (25.6%) is the
leader by a significant distance, followed by Upper Austria [AT31; 17.1%], Lower Austria
[AT12; 15.5%) and Styria [AT22; 12.8%]. Upper Austria (especially Linz) and Styria have
various industrial clusters (including automotive suppliers, machinery, food and timber).
As a result of the notable revenue from tourism, Austria's trading deficit is traditionally
countered by a positive balance of services. In 2014, travel generated a positive balance
of EUR 7.4bn. The most important tourist region is West Austria (Tyrol, Salzburg). Austria has benefited in particular from robust growth in Germany, its main trading partner.
The dominant parties in Austria are the Social Democratic Party of Austria (SPÖ) and
the Austrian People’s Party (ÖVP). Since 2015, the Freedom Party of Austria (FPÖ) has
formed part of a coalition with the SPÖ in Burgenland, while in Upper Austria, a labour
convention exists between the FPÖ and the ÖVP as part of the the Proporz administration. Austria’s Interior Minister cancelled the presidential election which had been scheduled for October due to faulty balloting. Postponement to 4 December will cost at least
EUR 2m.
[AT1] Ostösterreich:
[AT11] Burgenland
[AT12] Niederösterreich
[AT13] Wien
[AT2] Südösterreich:
[AT21] Kärnten
[AT22] Steiermark
[AT3] Westösterreich:
[AT31] Oberösterreich
[AT32] Salzburg
[AT33] Tirol
[AT34] Vorarlberg
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Industry (except construction)
3 Public admin, educ., human health, social
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
8,6
83.879
337,3
Value
21,9
21,7
17,6
10,0
9,1
19,5
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
11,7%
8,2%
1 Germany
29,6%
Food, beverages and tobacco
9,0%
7,3%
2 USA
6,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 7,1%
parts thereof 3(including
Italy
non-electrical counterparts, n.e.s.,
6,1%
of electrical household-type e
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
6,4%
n.e.s.
4 Switzerland
5,3%
Medicinal and pharmaceutical products
6,6%
6,2%
5 France
4,4%
Machinery specialized for particular industries
3,3%
5,5%
6 Slovakia
4,3%
Manufactures of metals, n.e.s.
3,1%
5,4%
7 Czech Republic
3,5%
Iron and steel
2,8%
5,2%
8 Hungary
3,3%
Power-generating machinery and equipment
2,8%
5,0%
9 Poland
3,2%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
4,8%
8
10 United Kingdom
3,1%
Value
8,45
-3,797
15,405
7,402
0,332
7,67
-5,531
-2,151
2,199
-9,245
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
8,9%
9,8%
1 Germany
42,0%
Food, beverages and tobacco
8,8%
7,4%
2 Italy
6,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 6,3%
parts thereof 3(including
Switzerland
non-electrical counterparts, n.e.s.,
5,7%
of electrical household-type e
Medicinal and pharmaceutical products
5,3%
5,7%
4 Czech Republic
4,3%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
5,4%
n.e.s.
5 Netherlands
4,0%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
4,8%
8
6 China
3,8%
Telecommunications and sound-recording and reproducing
4,1%
apparatus4,5%
and equipment
7 Slovakia
2,7%
Petroleum, petroleum products and related materials 8,2%
4,4%
8 France
2,6%
Manufactures of metals, n.e.s.
2,9%
4,3%
9 USA
2,6%
Crude materials
4,1%
4,3%
10 Hungary
2,6%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Austria focuses on
hydro-electric power,
rail and waterways
Austria does not have any nuclear power stations in operation and instead obtains just
under 70% of its electricity needs from renewable energies. As a traditional transit country between Italy and Germany, reducing the volume of road traffic is particularly important. In its accession negotiations (1994), Austria already made reducing heavy
goods traffic a central condition of its EU membership. The Brenner Base Tunnel, which
is to be a core part of the Trans-European Transport Networks (TEN-T), is scheduled to
be completed in 2026. The most important inland waterway is the Danube. Statistics
show that Austria transported around 8.6 million tonnes of freight via the river in 2015.
Ores and metal waste (2.3 million tonnes), agricultural and forestry products and live
animals (1.6 million tonnes) as well as mineral oil products (1.3 million tonnes) were the
most frequently transported goods. With the volume of passengers up in 2015 by 1.3%
on the previous year to 22.8 million, Vienna-Schwechat, remains the country's most
important airport. In 2015, freight rates at Vienna airport stood at 272,575 tonnes.
NORD/LB Fixed Income Research
Page 54 of 109
Issuer Guide 2016 – Eurozone (EU19)
Majority of Heta creditors
vote for conversion
Over 98% of Heta bondholders agreed to Kärntner Ausgleichszahlungs-Fonds’ (KAF)
buyback offer. A total of 99.5% of preferential creditors as well as almost 90% of subordinate creditors voted in favour of the offer. Creditors can now choose between a cash
payment at a proportion of the nominal amount (75% preferential creditors; 30% subordinate creditors) or conversion of the Heta bonds to zero-coupon bonds (with or without
federal guarantee), which around 90% of preferential creditors and approximately 45%
of subordinate creditors are expected to claim.
OeBFA is Austria's debt
management office
OeBFA (Austrian Treasury) is responsible for debt portfolio and liquidity management.
The majority of financing is carried out via regular auctions of government bonds
(Bundesanleihen, RAGB), which since 2003 have covered the entire medium to longterm maturity spectrum. The last federal note (Bundesobligation) was issued at the end
of 2002, which means that the current issuance calendar exclusively comprises government bonds. The ADAS (Austrian Direct Auction System) platform is available for auctions. In addition, each year Austria carries out one or two syndicated issues. Inflationlinked government bonds are issued as infrequently as FRN. Other financing instruments are represented by various programmes (EMTN, Austrian Treasury Bills, AUDMTN) as well as loan and promissory note loan formats. According to Eurostat, around
three-quarters of all Austrian debt securities are held by foreigners and a fifth by domestic financial institutions. The gross financing requirement for the current year is estimated
to be between EUR 30bn-EUR 33bn - after EUR 27-30bn as at 10 December 2015 - and
the majority of this figure is already covered. Further information is available in the current investor presentation and the annual reviews.
EUR bonds Austria (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AA+
Stable
Moody’s
Aa1
Stable
S&P
AA+
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
max. 12m
ATB; RATB act/360
zero
discounted
as required
Austria Treasury Bill (RATB)* Unlike in the past, the Bloomberg financial information system displays 22 money market
papers (RATB) – exclusively dominated in USD - representing a volume of EUR 4.5bn or
USD 5.0bn. However, according to the OeBFA, this volume is substantially lower than
the actual issuance volume, which once again was not made public. The RATB programme has been in place since March 1999 and is unlimited in terms of amount. RATB
are generally "customised and issued as required" as private placements and are popular with buy-and-hold investors. The money market programme also includes foreign
* Any FX risks directly hedged on
currencies (e.g. USD, GBP and AUD). As previously mentioned, currently only USD
issue of RATB
bonds are outstanding.
NORD/LB Fixed Income Research
Page 55 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
max. 70y
Bund.; RAGB
act/act
fixed
annual
once per month
Government bonds
Austrian government bonds (Bundesanleihen) are medium and long-term debt securities
(Bundesanleihen, RAGB)
with maturities of up to 70 years, which are placed via auction or syndication. At present,
24 bonds with an outstanding volume of EUR 197.9bn are in issue. In addition to offering
core maturities of between two and ten years, Austria also services investor demand in
ultra-long maturities. The bond with the longest life is RAGB 3.8 01/26/62 (EUR 3.4bn),
which was issued in 2012 as a 50-year bond. In addition to three other long maturities,
(2037, 2044 and 2047), the 70y segment has been offered since October 2016. While
RAGB 1 ½ 11/02/86 currently “only” comprises EUR 2bn and is certain to be raised in
future, RAGB 4.15 03/15/37 has a volume of EUR 12.1bn and RAGB 3.15 06/20/44 has
a volume of EUR 6.4bn. Government bonds can be stripped and reconstructed. The
Collective Action Clauses now mandatory for European government bonds with maturities equal to or greater than a year are described in detail in the General Terms and
Conditions for Government Bonds.
Term
Security
7d to 70y
AUST
Austria Govt International
Bond (AUST) *
* Any FX risks directly hedged on
issue of AUST
Day count
various
Coupon type
various
Cpn frequency
various
Issuance
as required
The EMTN programme is very flexible and includes maturities ranging from seven days
to 70 years. The Austria Govt international bonds (AUST) included in the Bloomberg
system are in the long-term maturity band. At present, 19 of the 33 bonds are denominated in euros. However, at EUR 3.6bn (out of around EUR 9bn) they represent less
than half of all bonds in this category. Foreign currencies in this case are USD, GBP,
JPY, CAD as well as SKK.
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
Austria govt bonds – Yields (%)
-1
08.2015
2 Yr
10.2015
12.2015
4 Yr
01.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 56 of 109
Issuer Guide 2016 – Eurozone (EU19)
Austria’s debt ratio grew in 2015 to 86.2% of GDP (2014: 84.5% of GDP). This is an
increase of 1.7% in total compared with the previous year and represents a new record
high in the period under review. The surge in debt can still be attributed to government
figures, while the Länder and local authorities recorded slightly declining figures.
Austrian debt hits new
record high
Detailed plan of revenues and A debt brake was resolved as early as 7 December 2011 which stipulates that the strucexpenses until 2020 in the
tural deficit may not exceed 0.35% of GDP from 2017 onwards. By 2020, the debt level
Stability Programme 2015
should have fallen back to 76.6% again. However, as a result of a veto by the opposition, this debt brake was not enshrined in the constitution at that time. On 28 March
2012, a "Savings and Consolidation Package" was adopted. A detailed outlook of possible developments of revenues and expenses until 2020 are provided in the current Stability Programme. Additional objectives are specified in the national Reform Programme.
Revenues are continuing
to rise
In 2015, Austria generated revenues of EUR 170.4bn, once again topping the previous
year's figure (2014: EUR 164.2bn) and setting another record in the period under review.
With the exception of other revenues, all line items recorded renewed growth. At approximately 30.7%, social contributions (EUR 52.4bn) account for the biggest share of revenue. Taxes on income and wealth rose from EUR 45.1bn (2014) to EUR 48.3bn and
recorded the largest increase in absolute terms. Taxes on production and imports went
up by 3.0% to EUR 49.0bn. Other revenues totalled EUR 20.8bn in 2015, falling short of
the figure for 2014 (EUR 21.0bn).
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
0
90
-1
80
70
-2
60
50
-3
40
-4
30
20
-5
10
0
-6
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Public spending rises
by 0.7%
Source: Eurostat, NORD/LB Fixed Income Research
Expenditure totalled EUR 174.3bn in 2015, which is a rise of EUR 1.2bn versus the
previous year (2014: EUR 173.1bn). Benefits and social transfers (EUR 79.4bn) were
the largest item. They were up EUR 2.6bn compared with 2014. Employee compensation also increased by EUR 1.1bn compared with the previous year to almost EUR
36.0bn. Capital transfers, which include funds to support the banking sector, registered
the largest relative and absolute decrease in comparison with the previous year, falling
from EUR 7.9bn in 2014 to EUR 4.2bn in 2015. The line item payable interest reduced
slightly from EUR 8.1bn (2014) to EUR 7.9bn in 2015. Other expenditure came to EUR
46.9bn in total, which is an increase of EUR 1.5bn on the figure for the previous year
(EUR 45.4bn).
NORD/LB Fixed Income Research
Page 57 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
Austria is pressing ahead with the liquidation of Heta, successor to the former Carinthian
state bank Hypo Alpe Adria. In the wake of the forced nationalisation of the bank during
the financial crisis, a dispute erupted between the state of Carinthia, the Austrian state
and the bank’s creditors concerning liability for the bad debts. After providing EUR 5.5bn
of aid, the Austrian government suspended further payments in March 2015. The Austrian Financial Market Authority then imposed a moratorium on debt repayments, meaning
that the Banking Recovery and Resolution Directive (BRRD) took effect for the first time
as part of a wind-up. In total, the state of Carinthia is liable for debts of EUR 10bn, which
represented a significant contingent liability given that the annual budget is some EUR
2bn. Additionally, the most important solution is that Heta creditors can choose between
a cash payment of 75% for senior Heta debt securities and 30% for subordinate Heta
debt securities. The state of Carinthia will participate a contribution to the tune of EUR
1.2bn. The Bund will make the rest of the financial resources available to the Kärntner
Ausgleichszahlungsfonds (KAF), thereby pre-financing a large part of the proceeds from
the Heta settlement. It is very important for the state of Carinthia in particular, which is
still currently unable to access the capital market at present, and for the Austrian state to
make headway in the biggest financial scandal in Austria’s post-war history, if only to
prevent its attractiveness to investors being damaged even further. However, the success of the 70-year bond this year shows that trust already far exceeds the lifespans of
many of our readers.
Strengths & opportunities
Weaknesses & risks
+
Closely linked to German economy
–
Exports EU-focused
+
Proximity to CEE
–
Demographic change in society
+
Well-developed infrastructure
–
Costs of healthcare and pensions
+
Political stability (grand coalition)
–
Busy transport routes (transit country)
–
Banking sector: Losses resulting from CEE
business
–
Rise of Eurosceptic parties
Source: NORD/LB Fixed Income Research
Comment – Bond market
Austria is heavily dependent on foreign investors, but given its very high rating, we do
not see this as a problem. Austria offers attractive yield pick-ups versus German, French
and Belgian bonds, depending on the investor group. Below the AAA universe, we view
Austrian government bonds as a good alternative to German bunds.
NORD/LB Fixed Income Research
Page 58 of 109
Issuer Guide 2016 – Eurozone (EU19)
Finland
The struggle to comply with the Maastricht criteria
Finland is divided into two
NUTS 1 regions and five
NUTS 2 regions:
Finland joined the EU in 1995 and, with GDP of EUR 209.2bn, contributes approximately 2% to the economic output of the EU 19 (2015). Due to the changes in the Finnish
economy, in 2014, Finland was unable to satisfy both the Maastricht criteria for the first
time since 1997 (new debt at 3.2% of GDP; total indebtedness at 59.3% of GDP in
2014). In 2015, Finland again failed to meet the criteria (new debt at 2.7% of GDP; total
indebtedness at 63.1% of GDP in 2015). Real economic growth was negative for the
third consecutive year in 2014 (-0.7%). However, in 2015, this trend was reversed with
modest real growth of 0.2% against 2014. Above all, the decline in electronics exports
as a consequence of the downturn in the fortunes of former global player Nokia, coupled
with the financial crisis, resulted in a negative balance of trade, impacting directly on
public finances and economic growth. The share of national GDP attributable to the
Nokia Group fell from 4.0% in the year 2000 to 0.4% in 2013. The shares of exports held
by SITC 6 products (manufactured goods, paper, cardboard, iron and steel), traditional
Finnish products and (refined) petroleum products are comparatively high. As oil (predominantly sourced from Russia) is also the major imported product, a certain dependency of the Finnish energy sector on Russia may be inferred. In light of Russia’s conduct in Ukraine, abandoning the country’s previous bloc neutrality in favour of joining
NATO is increasingly being discussed by Finnish politicians. Apart from Germany, its
most important trading partners (Sweden, Russia) are not members of the eurozone. At
approximately 38.2%, Helsinki-Uusimaa [FI1B] contributes the largest share to national
GDP. Helsinki, Espoo and Vantaa form the most important business conurbation in the
country, which lies only 80km away from Tallinn, the Estonian capital. West Finland
[FI19] accounts for 22.6% of Finland’s economic output, with the manufacturing industry
having a stronger presence in this region than in the south. With a 19.7% share of the
national GDP, the regions of North and East Finland follow [FI1D]. A major information
and communications technology (ICT) cluster is located in the Oulu area of this region.
In recent years, the importance of mining and exploration (especially metal ores) has
also been growing. East Finland primarily relies on the timber industry, which is still the
dominant Finnish industry. With 18.8%, South Finland [FI1C] generates the smallest
share of GDP across all NUTS 2 regions. The NUTS 1 region Åland [FI2] contributes
just 0.7% to national GDP.
[FI1] Manner-Suomi:
[FI19] Länsi-Suomi
[FI1B] Helsinki-Uusimaa
[FI1C] Etelä-Suomi
[FI1D] Pohjois-ja Itä-Suomi
[FI2] Åland
[FI20] Åland
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Public admin, educ., human health, social
2 Industry (except construction)
3 Trade, transport, accomodation, food serv.
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
5,5
338.440
207,2
Value
22,2
18,7
17,0
13,1
8,4
20,6
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Paper, paperboard and articles of paper pulp, of paper or1,5%
of paperboard
13,8%
1 Germany
14,3%
Crude materials
2,9%
9,1%
2 Sweden
10,2%
Iron and steel
2,8%
7,3%
3 USA
7,0%
Petroleum, petroleum products and related materials 4,0%
6,8%
4 Netherlands
6,8%
Machinery specialized for particular industries
3,3%
6,5%
5 Russia
6,1%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 5,8%
parts thereof 6(including
United Kingdom
non-electrical counterparts, n.e.s.,
5,0%
of electrical household-type equipm
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
5,6%
n.e.s.
7 China
4,8%
Road vehicles (including air-cushion vehicles)
11,7%
5,0%
8 Estonia
3,0%
Power-generating machinery and equipment
2,8%
3,8%
9 France
2,9%
Non ferrous metals
1,7%
3,6%
10 Belgium
2,8%
Value
-2,08
0,13
0,446
-0,942
-2,173
3,563
-0,697
-3,841
2,578
-0,785
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Petroleum, petroleum products and related materials 8,2%
10,9%
1 Germany
17,6%
Food, beverages and tobacco
8,8%
8,1%
2 Sweden
16,7%
Road vehicles (including air-cushion vehicles)
8,9%
7,9%
3 Russia
10,0%
Crude materials
4,1%
6,8%
4 Netherlands
8,1%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 6,0%
parts thereof 5(including
Denmarknon-electrical counterparts, n.e.s.,
4,3%
of electrical household-type equipm
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
4,7%
n.e.s.
6 France
3,8%
Other transport equipment; confidential traffic of section 3,5%
7
4,6%
7 China
3,8%
Medicinal and pharmaceutical products
5,3%
3,8%
8 Belgium
3,5%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,5%
8
9 United Kingdom
3,3%
Telecommunications and sound-recording and reproducing
4,1%
apparatus3,4%
and equipment
10 Estonia
3,2%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year end 2015
Marine transport is the No. 1
in terms of logistics
As a result of its geographical position, Finland is only connected to the other members
of the eurozone to a small extent. Around 80% of foreign trade is conducted by sea.
Helsinki (South), Rauma (South West) and Kokkola (West) are the most important seaports. Until now, Russian goods have been shipped overseas via Kokkola, in particular.
Competition for Finnish ports has been coming from the expansion of the big Russian
port in Ust-Luga over the past few years, which is located around 100km from St. Petersburg and looks set to reach an annual freight volume of 180 million tonnes as from
2018. The most important Finnish airport is Helsinki-Vantaa. The import of Russian oil
constitutes a particularly high cost factor, which is why the use of nuclear energy is
being further expanded. Consequently, another pressurised water reactor is being built
on the Olkiluoto peninsula with German and French participation.
NORD/LB Fixed Income Research
Page 59 of 109
Issuer Guide 2016 – Eurozone (EU19)
EUR bonds Finland (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AA-
Stable
Moody’s
Aa1
Stable
S&P
AA-
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
Finland issued new
syndicated bond with
16-year maturity on 2 March
In 2015, we reported that Finland had placed a new syndicated bond with a 16-year
maturity (RFGB 0 3/4 04/31; EUR 3bn). The issue was oversubscribed and offered an
issuing yield of just 0.844% (ms -15bp), compared with 2.055% (ms +5bp) for a ten-year
maturity in the previous year. In the meantime, the yield of ten-year government bonds
has even dropped below zero. However, this is still not a problem for the investors, the
majority of whom came from the UK and German-speaking regions.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
5y to 30y
Fin. govt.; RFGB act/act
fixed
annual
twice a year
sarjaobligaatiot –
Finnish government bonds (RFGB) are fixed income bonds with an annual coupon
Finnish govt. bond (RFGB)
payment. Each bond represents a volume of between EUR 3bn and EUR 6.5bn. Fiveyear and eleven-year benchmarks are scheduled to be issued every year. The longestdated Finnish bond is RFGB 2 ⅝ 07/04/42, which has a volume of EUR 4.5bn. No (further) bonds are reaching maturity in 2016, with the country’s only redemption concerning RFGB 3 ⅞ 09/15/17, which has a volume of EUR 6.0bn and is therefore one of the
biggest individual bonds in Scandinavia. There also appear to be plans for between two
and four tap issues of existing series this coming year. According to information from the
Finnish treasury, the total volume of all outstanding bonds this year will climb by EUR
6.0bn.
Term
Security
Day count
Coupon type Cpn frequency
Issuance
max. 364,000 (EUR) Fin. treas.; RFTB act/360 Non-EOM zero
discounted
as required
max. 364,000 (USD) Fin. treas.; RFTB act/360
zero
discounted
as required
velkasitoumukset – Finnish
Treasury bills (RFTB) are money market papers issued at irregular intervals with a maxtreasury bills (RFTB)
imum maturity of 364 days. RFTB are issued in EUR or USD. At present, two treasury
bills have been issued, of which EUR 7.0m (RFTB 0 12/13/16) is denominated in euro.
The USD bond (RFTB 0 01/18/17, EUR 0.8bn) was only issued in November 2016.
NORD/LB Fixed Income Research
Page 60 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
5, 10y (EUR)
Fin. int.; FINL
act/360
FRN (EUR003M)
quarterly
as required
4, 5, 10y (FX)
Fin. int.; FINL
various
various
various
as required
Finnish international govt.
At EUR 100m, the volume of the only remaining EUR-denominated bonds in this catebond (FINL)
gory (FINL 0 01/20/20) is very low. To attract more money from investors, the supply is
supplemented by foreign currency EMTN. In addition to six USD-denominated bonds
(EUR 7.0bn), GBP (EUR 2.6bn), SEK (EUR 1.2bn) and NOK (EUR 0.6bn) serve as
additional issuance currencies. The selection of these currencies provides further evidence that a significant share of Finland’s investor base is not part of the eurozone.
Finnish govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06.2015
-1
08.2015
10.2015
2 Yr
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
Finland has no need of an
issuance calendar
With a total volume of EUR 85.6bn (19 bonds), Finland is a relatively small issuer by
comparison with other European countries. Its issuance activities centre on government
bonds (RFGB; Finnish government bonds; sarjaobligaatiot), which are supplemented in
the ultra-short maturity spectrum by money market papers (RFTB; Finnish treasury bills;
velkasitoumukset). Primary issues are generally placed via syndication by the Finnish
State Treasury (valtiokonttori) in order to best meet the needs of investors and ultimately
also to achieve maximum acceptance in the secondary market. Taps are carried out
exclusively as auctions. There is no Finnish issuance calendar for the reasons given
above. Foreign investors are extremely important for Finland. According to Eurostat,
around 80% of all Finnish bonds are held by foreigners, which is the highest figure of all
the EU 19 member states. For 2016 as a whole, Finland plans to raise EUR 20.5bn
(EUR 6.0bn net) which will mainly comprise RFGB (EUR 12.7bn) and RFTB (EUR
5.0bn). In addition to the standard products, the Finnish treasury maintains an EMTN
programme which provides for the issue of FRN and foreign currency bonds. While
foreign investors are the target group for the latter, the very small supply of EURdenominated retail bonds (RFRB) is geared to domestic retail clients. RFRB are therefore not presented separately below. Neither the EMTN programme nor retail bonds
represent volumes that compete more closely with Finnish government bonds. An overview of Finnish debt securities is available from the website and other publications.
Finland still fails to meet the
Maastricht criteria
With general government debt of 59.3% of GDP and a total government deficit of
-3.2% of GDP, Finland only fulfilled one of the Maastricht criteria in 2014. In 2015, the
financial deficit once again fell under 3%, at -2.7% of GDP. However, total debt at the
same time amounted to 63.1% of GDP. The European Commission is predicting that
debt will continue to rise in 2016 and 2017, although the funding deficits are expected to
fall slightly.
NORD/LB Fixed Income Research
Page 61 of 109
Issuer Guide 2016 – Eurozone (EU19)
Outlook for Finnish
economic development
Following three years of recession, the Finnish economy returned to modest real growth
of 0.2% of GDP again in 2015 (-0.7% of GDP in 2014). This growth fell slightly short of
expectations for 2015 (0.5% GDP growth). However, at 2.7%, net debt was in line with
predictions. For 2016, the European Commission predicts that growth will amount to
0.7% of GDP, while net debt will continue to fall slightly. However, overall debt will at the
same time increase to more than 65% of GDP on account of the low growth rates. The
challenges facing the Finnish economy are not diminishing – the restructuring away
from an export-driven economic structure towards one that is broad-based is in full
swing.
Current taxes on income,
wealth etc. remain the No. 1
revenue source
Finland increased its revenue to EUR 115.0bn in 2015 (2014: EUR 112.7bn), which is
the highest figure in the period covered by this report. Revenue slumped significantly
between 2008 (EUR 101.6bn) and 2009 (EUR 94.6bn), but has clearly recovered again
since then. Social contributions rose to EUR 27.0bn in 2015 (2014: EUR 26.3bn), but
still remain only the third biggest revenue item. Taxes on production and imports rose to
EUR 29.8bn (2014: EUR 29.6bn). At just over 30% of total revenue, taxes on income,
wealth etc. (EUR 34.8bn) made the greatest contribution and once again increased by
more than EUR 1.0bn (2014: EUR 33.8bn). Other revenue increased slightly to EUR
23.4bn (2014: EUR 23.1bn).
Government debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
6
90
5
80
4
70
3
60
2
50
1
40
0
30
-1
20
-2
10
-3
0
-4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
2015
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Expenditure continues
to grow
Source: Eurostat, NORD/LB Fixed Income Research
In recent years, Finland’s expenditure always increased at a stronger rate than income,
which is reflected in the budget balance figures between 2011 and 2014 (chart left). This
trend was reversed in 2015. Expenditure totalled EUR 120.7bn, which represented a
rise of around EUR 1.5bn compared with 2014 (EUR 119.2bn). In terms of total expenditure, Finland is consequently the leader in the eurozone, at 58.3% of GDP. The main
problem area is monetary social benefits and social transfers in kind, which climbed to
EUR 47.4bn in 2015 (2014: EUR 45.9bn). The second biggest individual cost block is
employee remuneration, at EUR 29.0bn. This item remained almost the same, although
a slight decline of EUR 0.1bn was recorded for the first time in the period covered by
this report. As a result of positive capital market conditions, interest payable remained
constant at EUR 2.5bn, accounting for just 2.1% of total expenditure. At EUR 3.7bn, the
figure had still been comparatively high in 2001 (5.4%). At EUR 860m, capital transfers
played no relevant role for Finland, but a relatively high increase of 27% year on year
was recorded. All other items came to EUR 40.9bn in total (2014: EUR 41.0bn).
NORD/LB Fixed Income Research
Page 62 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
Finland is economically and politically stable, has a good infrastructure and is technologically advanced. However, the country faces major challenges particularly as a result of
the waning importance of its former flagship electronics and timber industries, as well as
the high level of dependency on Russian energy imports, which is reflected particularly
in the debt figures. In 2014, Finland failed to satisfy both the Maastricht criteria for the
first time in the period covered by this report. Given that the debt situation remains within
the comfort zone at present, this is still not having any serious consequences. In our
opinion, the benefits of the common currency for Finland are undermined by the fact that
its main trading partners, Sweden and Russia, are not part of the common currency area
and that there are also no overland transport links with other members of the EU 19.
The construction of the Russian seaport at Ust-Luga is likely to reduce Finland’s importance as a distribution hub in the Baltic. With regard to the development of the Finnish economy, we consider there to be an increased likelihood of negative surprises and
it has not been possible to entirely fulfil the forecasts for 2015. As in France, the importance of industry (excluding construction) is waning and this is primarily reflected in
the negative movement in the current account balance. Eurostat reports a deficit of EUR
2.0bn for 2013.
Strengths & opportunities
Weaknesses & risks
+
Traditional trade in the Baltic region
–
Export industry is losing global market shares
+
Technologically advanced
–
De-industrialisation
+
Upturn in mining sector (especially metal ores)
–
Main trading partners (RUS and SWE) not in EU 19
+
Sound public finances
–
Less transit trade in Russian goods expected
+
Potential revenue from privatisation
–
High costs of imported energy
+
Political stability
–
Costs of healthcare and pensions
–
Non-fulfilment of Maastricht criteria
Source: NORD/LB Fixed Income Research
Comment – Bond market
Finland is acting very cautiously with regard to both the economic outlook and issuance
activity. Finnish government bonds are a sound investment of limited liquidity in the AA
segment. A problematic factor worth noting is that Finland only focuses on two maturities
(5y and 11y), which means that not all sections of the curve are consistently covered by
benchmark bonds. Since 2014, we have notice a shift in the trend (6, 7, 10 and 16y).
NORD/LB Fixed Income Research
Page 63 of 109
Issuer Guide 2016 – Eurozone (EU19)
Ireland
From model pupil to record GDP growth
Ireland is divided into two
NUTS 2 regions and eight
NUTS 3 regions:
With GDP of EUR 255.8bn in 2015 (2014: EUR 193.2bn), Ireland accounts for around
2.4% of the eurozone’s economic output. As early as the 1960s, the Irish government
started to systematically attract foreign businesses (Industrial Development Agency;
IDA), with a focus even then on building up export-oriented industries. In 1973, Ireland
joined what was then the EC and has benefited from extensive grants ever since. In
addition to establishing itself as a production and distribution location for U.S. and British
companies, Ireland obtained its economic power from the targeted expansion of its financial sector. When the property bubble burst in 2008, the balance sheet totals (EUR
1,400bn) in the banking sector were around seven times larger than national GDP at the
time. Following the establishment of a state bad bank, the National Asset Management
Agency (NAMA), and the associated expenses incurred by the Irish government, a debt
situation occurred within the space of a few years (new debt totalling 32.3% of GDP in
2010) which made it impossible for Ireland to independently fund itself via the markets
(2012 total debt: 120.1% of GDP). After comprehensive reforms as part of the European
bailout (more flexible employment market as a result of a relaxation of the protection
against unfair dismissal, simplification of the minimum wage system, increase in the
pension age to 68, recapitalisation of banks and further spending cuts in the public sector budget), a marked positive trend has been evident since 2013. In this regard, the
Irish economy grew by 26.3% in terms of GDP in 2015, outstripping every other nation in
the world. According to the Central Statistics Office (CSO), this unusually strong growth
was attributable, on the one hand, to increased imports of aircraft and, on the other, to
the high number of businesses which moved their headquarters to Irish soil in 2015 on
account of the low rates of corporate tax. Their capital injection had a direct effect on
the country’s GDP. Before growth for 2015 was corrected in July 2016 to reflect this
huge value, economic growth of 7.8% had officially been recorded. Placing the abovenamed exceptional factors to one side for a moment, this was primarily attributable to
the substantial trade surplus (chemical products (SITC 5; especially pharmaceutical
products, which account for more than half of all exports, making Ireland the global
leader in this sector)), with significant growth in domestic demand at the same time. The
most important trading partners by far are the USA and the UK, both of whom also lead
the field in terms of direct foreign investment in Ireland.
[IE01] Border,
Midland and Western:
[IE011] Border
[IE012] Midland
[IE013] Western
[IE02] Southern and Eastern:
[IE021] Dublin
[IE022] Mid East
[IE023] Mid West
[IE024] South East (IE)
[IE025] South West (IE)
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Industry (except construction)
2 Public admin, educ., human health, social
3 Trade, transport, accomodation, food serv.
4 Financial and insurance activities
5 Information and communication
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
4,6
69.797
214,6
Value
26,3
17,8
15,6
10,1
9,0
21,3
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Medicinal and pharmaceutical products
6,6%
29,9%
1 USA
24,2%
Organic chemicals
3,0%
21,3%
2 United Kingdom
13,5%
Essential oils, resinoids and perfume materials; toilet, polishing
1,6% and cleaning
7,9% preparations
3 Belgium
13,3%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
6,3%
8
4 Germany
6,6%
Professional, scientific and controlling instruments and apparatus,
2,4%
n.e.s.
5,9%
5 Switzerland
5,6%
Other transport equipment; confidential traffic of section 4,3%
7
4,9%
6 Netherlands
4,4%
Office machines and automatic data processing machines
2,0%
4,1%
7 France
4,4%
Chemical materials and products, n.e.s.
2,2%
3,3%
8 Spain
3,5%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 2,8%
parts thereof 9(including
Japan non-electrical counterparts, n.e.s.,
3,5%
of electrical household-type equipm
Crude materials
2,9%
1,8%
10 Italy
2,3%
Value
7,25
36,368
3,206
-1,588
2,934
1,858
-10,116
15,407
-11,299
-2,927
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Other transport equipment; confidential traffic of section 3,5%
7
16,2%
1 United Kingdom
31,5%
Medicinal and pharmaceutical products
5,3%
9,6%
2 USA
14,8%
Office machines and automatic data processing machines
3,0%
6,3%
3 France
10,3%
Petroleum, petroleum products and related materials 8,2%
6,2%
4 Germany
9,3%
Organic chemicals
3,2%
6,1%
5 Netherlands
4,9%
Road vehicles (including air-cushion vehicles)
8,9%
5,8%
6 China
4,1%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
4,8%
8
7 Belgium
2,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,2%
parts thereof 8(including
Switzerland
non-electrical counterparts, n.e.s.,
2,1%
of electrical household-type equipm
Machinery specialized for particular industries
1,8%
3,9%
9 Japan
2,0%
Articles of apparel and clothing accessories
3,3%
3,1%
10 Norway
1,8%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year end 2015
Outside of
County Dublin,
Ireland’s economy
remains weak
The regional economic differences are substantial. The majority of Ireland’s economic
output (82.4%) is generated in the South East [IE02]. County Dublin [IE021] contains the
capital city of Dublin and accounts for half of regional GDP alone. In geographic terms,
the chemical industry among others is centred on Cork [IE025]. Only 17.6% of Ireland’s
economic output is generated in Border, Midland and Western [IE01]. In 2009, a major
U.S. company closed its facility in Limerick [IE02] and relocated its manufacturing to
Poland. Goods are exported from Ireland primarily by ship via Antwerp. The most important airports are Dublin and Cork. Natural gas reserves were discovered off the south
coast of Ireland in 1978, but traditionally Ireland is a net energy importer (85% of energy
needs). In addition to raw materials and energy, machinery, vehicles and aircraft are
also imported.
NORD/LB Fixed Income Research
Page 64 of 109
Issuer Guide 2016 – Eurozone (EU19)
National Treasury
Management Agency (NTMA)
and National Asset
Management Agency (NAMA)
Since 1990, the NTMA has functioned as the Irish finance agency. To combat the fallout
of the financial market crisis, NAMA was established as a bad bank in December 2009.
NAMA took on critical land and development loans, as well as business loans, and issued state-guaranteed securities in their stead. A second bad bank, the Irish Bank
Resolution Corporation (IBRC; 2011 to 2013), took on the distressed assets of the Anglo
Irish Bank and Irish Nationwide Building Society. Up until the financial crisis, Ireland
itself focused on traditional money market and capital market paper (T-bills, Govt
bonds). Its access to the capital market was then blocked from January 2010 onwards. It
took until January 2013 for Ireland to make a comeback with a EUR 2.5bn syndicated
tap issue of IRISH 5½ 10/18/17. One year later, in January 2014, the issue of a new tenyear bond (IRISH 3.4 03/18/24; EUR 3.75bn) followed that until now was tapped to EUR
8.0bn. According to information from the Irish Finance Agency NTMA, the majority of
investors are based outside the eurozone.
EUR bonds Ireland (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
A
Stable
Moody’s
A3
Positive
S&P
A+
Stable
70
60
Amount Outstanding (EURbn)
As at: 31 October 2016
50
40
30
20
10
0
2016
2017
IRTB
0,5
0,5
Bilateral
0,0
0,0
EFSM
2018
2019
2020
2021
0,0
1,7
2,4
0,7
3,7
3,7
3,9
2022
2023
1,2
0,4
3,0
2024
2025
0,8
2026
2,0
EFSF
IMF
7,8
18,4
2,5
3,3
3,7
3,1
IAB
8,0
VRB
FRB
>2026
19,4
6,2
9,1
14,2
6,8
5,7
9,4
19,9
5,6
11,4
6,4
Source: Bloomberg, NORD/LB Fixed Income Research
Comeback to the
primary market
In government bonds, Ireland currently offers a volume of EUR 122.0bn (IRISH), as well
as EUR 1.0bn in the form of Treasury bills (IRTB). According to the Irish central bank,
foreign investors no longer hold 72.2% of Irish government bonds, which was the case
as at year-end 2012. As at June 2016, only 56.6% were held by foreign investors. This
means that the ratio of foreign to domestic bondholders has decreased to be almost
level. The NTMA website provides an overview of all loans across the maturities spectrum. According to this overview, the IMF (EUR 4.4bn), EFSF (EUR 18.4bn), EFSM
(EUR 22.5bn) along with the UK, Sweden and Denmark (EUR 5.0bn) have granted a
total amount of EUR 50.3bn. The investor presentation October 2016 provides an up-todate overview of the status of Ireland’s capital market suitability.
Ireland is once again
represented in the
investment grade segment
without restriction
Following upgrades from all three ratings agencies, Ireland is finally part of the investment grade universe for all three agencies again. This is important because it helps the
country reach other investor groups that are subject to stricter requirements, above all
the ECB with its purchase regulations as defined in the Public Sector Purchase Programme. S&P has given the country an A+ rating and Fitch affirmed an A rating.
NORD/LB Fixed Income Research
Page 65 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
1, 3, 6, 9, 12m
Irish T-Bills; IRTB act/act
zero
discounted
irregular
Irish T-bills (IRTB)
Irish treasury bills are zero coupon bonds which are placed with maturities of between
one and twelve months, generally by auction. A volume of EUR 1.0bn is in issue at the
moment and is attributable to two bills of EUR 500m each.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
>1y
FRB; IRISH
act/act
fixed
annual
irregular
Irish govt bonds:
There are 29 Irish government bonds currently placed in the market, of which 13 are
fixed-rate bond (FRB) *
classic fixed rate (benchmark) bonds (FRB; EUR 53.8bn). All other variants (IAB; VRB)
have arisen as a result of the financial crisis.
Term
Security
Day count
Coupon type
Cpn frequency Issuance
15, 20, 25, 30, 35y IAB; IRISH
act/act
fixed (sinkable)
annual
20.09.12, 18.01.13
Irish govt bonds:
Ten bonds are amortising bonds (EUR 24.0bn), which mature between 2027 and 2047.
Irish amortised bond (IAB)*
In addition to annual coupon payments, a pro-rata redemption is carried out each time,
so that investors receive the same level of cash flow each year. Five bonds were issued
on 20 September 2012 and 18 January 2013 respectively.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
25y-40y
VRB; IRISH
act/act
FRN (EUR006M)
half-yearly
08.02.2013
Irish govt bonds:
There are eight FRN, which have a total volume of around EUR 20.5bn and are linked
variable rate bond (VRB)*
to the 6M-Euribor. The bonds were issued on 8 February 2013 and mature between
2043 and 2053. These variable rate bonds replaced promissory notes, through which
the government was originally liable for a total sum of EUR 31bn, which arose following
the takeover of debt from the Anglo Irish Bank and Irish Nationwide. For Ireland, the
* Name according to daily Irish govt
bonds outstanding report
switch from promissory notes to these long-term FRNs meant a significant interest rate
advantage.
Little attention is still paid to
variable rate bonds (VRB)
These VRB (average residual maturity: nearly 30 years) are still held by the Central
Bank of Ireland (CBI). In its Transaction Overview in February 2013, the CBI promised
to sell “the bonds as quickly as possible” at market conditions, but only if permitted by
financial market stability. The CBI intends to sell VRB amounting to EUR 0.5bn each
year from 2015 to 2018. From 2019 onwards, the volume is set to rise to EUR 1.0bn
each year, which will be maintained until 2023. From 2024 onwards, the volume on the
agenda is EUR 2.0bn each year until the total sum of EUR 25bn has been sold by 2032.
In our opinion, it is extraordinary that the CBI is being allowed to retain these portfolios
on its books for so long. However, the ECB has not called for a faster sale to date.
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
Irish govt bonds – Yields (%)
-1
08.2015
3 Yr
10.2015
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 66 of 109
Issuer Guide 2016 – Eurozone (EU19)
Ireland reverses the
sovereign debt trend
Having started with a ratio of general government debt to GDP of 24.9% in 2007, Eurostat shows that this ratio rose to 120.1% of GDP in 2012. At -7.2% of GDP (2012:
-8.2%), net lending also remained very high (chart left). However, Ireland was able to
exit the EFSF financial assistance programme in 2013 and has once again enjoyed
access to the financial markets since then. The positive development is reflected in the
total debt figure (93.8% of GDP in 2015) and net lending (-2.3% of GDP in 2015). The
European Commission’s forecast back in May predicted growth of 4.9% for 2016 and
3.7% in 2017.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
Sonstige Einnahmen
Sozialbeiträge
Produktions- und Importabgaben
Einkommen- und Vermögensteuern
Source: Eurostat, NORD/LB Fixed Income Research
Sonstige Ausgaben
Vermögenstransfers, zu leistende
Zinsen, zu leistende
Monetäre Sozialleistungen, soz.Sachtransfers
Arbeitnehmerentgelt, zu leistendes
Source: Eurostat, NORD/LB Fixed Income Research
Only around 39.5% of
revenue stems from
direct taxes
At EUR 70.5bn, Ireland’s revenue rose in 2015 (2014: EUR 65.7bn) to its highest level
since 2008 (EUR 65.4bn). It is positive to note that social contributions climbed again to
EUR 11.4bn (2014: EUR 10.9bn) as a result of the strong trend in the labour market
(average rate of unemployment in 2015: 9.4%, clear downward trend). Taxes on income
and wealth also increased to EUR 27.9bn (2014: EUR 24.9bn). With a rise to EUR
22.5bn, the development in taxes on production and imports (2014: EUR 21.2bn) is also
pleasing, although the best result in the period under review (2007: EUR 25.9bn) is
considerably higher.
Payable interest climbs to
10.5% of total expenditure
Overall, expenditure has significantly outstripped income since 2008 (chart right). However, the growth rate of expenditure is rising considerably more slowly than that of income. In 2015, expenditure rose from EUR 72.9bn in 2014 to EUR 75.4bn. This development was primarily driven by an increase in capital transfers of approximately EUR
2.4bn to EUR 3.5bn, which nevertheless means that the figure remained significantly
below the record figure in this time series (2010: EUR 37.1bn). In 2010, the costs incurred by the Irish government for rescuing the banks had risen so sharply that capital
transfers soared from EUR 5.7bn (2009) to EUR 32.9bn (2010). The trend in all other
items was steady. Payable interest, which accounted for around EUR 6.7bn in 2015
(2014: EUR 7.5bn), was slightly reduced as a result of the low-for-long interest rate
situation. There was little change in social benefits and social transfers (EUR 28.0bn;
2014: EUR 28.1bn), which represented around 37% of all expenditure. Compensation of
employees rose slightly to EUR 19.5bn (2014: EUR 18.8bn). Other expenditure was
also kept more or less stable at EUR 17.6bn (2014: EUR 17.4bn).
NORD/LB Fixed Income Research
Page 67 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
Unlike other former and current bailout countries, Ireland again generated a high current
account surplus of EUR 29.3bn in 2015 as a result of its strength in exports. This puts
Ireland in third place behind Germany and Italy. After slumping in 2007/08, the trade
surplus also reached the high level of EUR 36.4bn in 2014. Additionally, the Irish economy is clearly back on course for growth. In recent times, Ireland has had the fastest
growing economy. Nevertheless, it would seem judicious in the long term to reduce the
predominance of pharmaceutical products in terms of exports by expanding other sectors. An increase in business taxes may further enhance the revenue situation, although
the potential impact on the all-important FDI for Ireland must be taken into account.
Within the eurozone, Ireland’s domestic market is comparatively insignificant. This is
why foreign direct investment has traditionally been of immense importance. Throughout
the crisis, Ireland was able to protect its appeal as a location for UK and U.S. companies, not least because it continues to forgo corporation tax revenue.
Strengths & opportunities
Weaknesses & risks
+
Financials, pharmaceuticals
–
Dependency on FDI from the UK and USA
+
Traditionally with a trade surplus
–
High sovereign debt, high payable interest
+
Attractive location for FDI
–
Tax-to-GDP ratio: Ranked 14th in EU19
+
Loan repayments deferred until far in future
–
Weak real estate sector
+
Successful return to primary market
–
Dependency on foreign investors
+
Investment grade rating from all three agencies
–
Low risk premium compared with AA and AAA rated
peers
+
Expatriates are increasingly returning home
Source: NORD/LB Fixed Income Research
Comment – Bond market
In recent years, Ireland has recovered enough for investors to rediscover their interest in
its government bonds in the primary market as well. The country’s progress is remarkable and has hastened its return to the investment grade segment. However, we consider
the substantial difference between Irish risk premiums and those for Italy and Spain as
excessive. The conversion of loans into EUR 25bn floaters (VRB) reduces Ireland’s
interest burden by around EUR 1bn per annum, which is positive in principle. However,
the fact that the redemption of most of the debt has been shifted into the far distant future is a concern. In 2015, Ireland was able to issue its inaugural 30y bond. Paper with a
maturity of 100 years followed in 2016. Ireland is essentially aiming to issue EUR
6bn–10bn per annum.
NORD/LB Fixed Income Research
Page 68 of 109
Issuer Guide 2016 – Eurozone (EU19)
Greece
Still the eurozone's problem child
Greece is divided into four
NUTS 1 regions and 13 NUTS
2 regions:
Greece's economic growth reveals a gloomy picture. Its (provisional) GDP was EUR
176.0bn in 2015, the lowest level since 2003 (EUR 178.9bn). Recession has been the
order of the day since the financial and economic crisis started in 2008, when Greece
was still able to post GDP of EUR 242.0bn. In October 2009, the social-democratic head
of government at the time, Giorgos Papandreou, revealed the disastrous budget situation. Since the state was no longer able to obtain funding on the financial markets, loans
from the eurozone and the IMF (first bailout package: EUR 73bn) prevented the country
from becoming insolvent. In return, the government of the day agreed to implement a
wide-ranging austerity programme. When it turned out that Greece, then deeply mired in
crisis, needed further funding, a second bailout package of EUR 173.2bn was provided
by the EFSF (European Financial Stability Facility) and the IMF in July 2011. Of this
amount, Greece made use of EUR 142.7bn. The replacement of Papandreou by the
financial expert Loukas Papadimos in November 2011 brought only temporary easing.
With the opinion of the general public split, a political stalemate ensued, leading to another transitional government in 2012. Antonis Samaras, prime minister for two and a
half years, failed in the presidential elections brought forward to the end of 2014. The
austerity policy and the weak economic situation in Greece resulted in the political extremes gaining a large number of votes. However, the resulting coalition of the left-wing
alliance (SYRIZA) and the right-wing populist ANEL party resigned in August 2015.
There were fresh elections in September 2015, which ultimately again produced a coalition of SYRIZA and ANEL. Greece's main trading partners on both the export and import
side were Italy and Germany in 2015. A look at the NUTS 1 regions of Greece in 2014
indicates that the capital Athens [EL3] accounts for the biggest share of Greek GDP, at
over 48%. The conurbation is very much dominated by the tertiary sector (services). It
also has the Port of Piraeus, Greece's gateway to world trade. The second-strongest
economic region is Northern Greece [EL1] at 21.8%, followed by Central Greece [EL2] at
20.1%. The tourist hotspots Aegean Islands and Crete round off the GDP with a share of
9.9%.
[EL1] Northern Greece:
[EL11] East Macedonia and Thrace
[EL12] Central Macedonia
[EL13] West Macedonia
[EL14] Thessaly
[EL2] Central Greece:
[EL21] Epirus
[EL22] Ionian Islands
[EL23] Western Greece
[EL24] Central Greece
[EL25] Peloponnese
[EL3] Attica
[EL30] Attica
[EL4] Aegean Islands, Crete:
[EL41] North Aegean
[EL42] South Aegean
[EL43] Crete
Country Profile
Value
1 Population (Mln. inhabitants)
10,9
2 Area (sq. km)
131.957
3 Gross Domestic Product (EURbn)
176,0
Gross value added by sectors (%)
Value
1 Trade, transport, accomodation, food serv.
22,7
2 Public admin, educ., human health, social
21,6
3 Real estate activities
16,7
4 Industry (except construction)
14,6
5 Arts, entertainment and recreation; other service activities
4,9
6 Others
19,4
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
1,36
-17,228
16,942
10,279
6,538
0,125
-3,607
2,404
-5,941
0,678
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Petroleum, petroleum products and related materials 4,0%
29,4%
1 Italy
11,4%
Food, beverages and tobacco
9,0%
18,0%
2 Germany
7,3%
Non ferrous metals
1,7%
7,1%
3 Turkey
6,8%
Crude materials
2,9%
6,9%
4 Cyprus
6,1%
Medicinal and pharmaceutical products
6,6%
4,0%
5 Bulgaria
5,4%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
2,9%
8
6 USA
4,8%
Iron and steel
2,8%
2,5%
7 United Kingdom
4,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 2,4%
parts thereof 8(including
Egypt non-electrical counterparts, n.e.s.,
4,1%
of electrical household-type
Articles of apparel and clothing accessories
2,1%
2,4%
9 Lebanon
3,0%
Office machines and automatic data processing machines
2,0%
1,9%
10 Saudi Arabia
2,9%
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Petroleum, petroleum products and related materials 8,2%
23,4%
1 Germany
10,6%
Food, beverages and tobacco
8,8%
12,9%
2 Italy
8,4%
Medicinal and pharmaceutical products
5,3%
6,4%
3 Russia
7,9%
Other transport equipment; confidential traffic of section 3,5%
7
4,9%
4 Iraq
7,0%
Road vehicles (including air-cushion vehicles)
8,9%
3,5%
5 China
5,9%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,4%
8
6 Netherlands
5,5%
Articles of apparel and clothing accessories
3,3%
3,3%
7 France
4,5%
Crude materials
4,1%
3,2%
8 Spain
3,7%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 2,6%
parts thereof 9(including
Bulgaria non-electrical counterparts, n.e.s.,
3,4%
of electrical household-type
Non ferrous metals
2,1%
2,5%
10 South Korea
3,4%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Third bailout package for
Greece…
The climax to the Greece crisis so far has been the expiration of the second bailout
package on 30 June 2015. For the first time, Greece was unable to service an instalment
amounting to around EUR 1.6bn for the IMF loan. This resulted in capital controls and a
one-week closure of the stock market and banks. To maintain the country's solvency, a
bridging loan of around EUR 7bn from EFSM funds was agreed in July 2015. Negotiations on a third bailout package also began at the same time. It was finally ratified on 19
August 2015 also in the German Bundestag and will run until 2018.
NORD/LB Fixed Income Research
Page 69 of 109
Issuer Guide 2016 – Eurozone (EU19)
… with compromises
The new financial assistance was initially provided solely from ESM funds, with payout
linked to progress made in reforms and to budget consolidation. It was not until 25 May
2016 that the IMF could also be taken on board. The compromise between the IMF and
the Euro group provides debt relief for Greece starting from 2018, after the current
bailout programme expires. Germany was one of the countries to reject this measure.
For this reason, the agreements reached so far are not very specific. The IMF is making
assistance dependent not only on an agreement on debt relief, but insists above all on
firm assurances as to how a debt haircut of this type will look. Nevertheless, around
EUR 30bn had been paid out of the EUR 86bn bailout package by October 2016.
Residual term to maturity of
the Greek bond portfolio is
15.4 years
The website of the Greek financial agency PDMA (Public Debt Management Agency)
clearly reflects the country's situation on international capital markets. For example, this
year too there are still no definitions of the financial instruments ('Under Construction').
This also applies to outstanding benchmark bonds. According to PDMA, the percentage
of T-bills in the ongoing funding of the country from January to June 2016 was 66.5%.
The other third came from the ESM. PDMA figures indicate that the volume-weighted
residual term to maturity of Greek government bonds rose from 6.3 years (2011) to
16.7 years. Greek debt securities are traded through the HDAT system, which is operated by the Bank of Greece.
Rating agencies Fitch and
Standard & Poor’s raise
Greece's credit rating
When European creditors reached a debt compromise agreement with Athens in midJuly, S&P upgraded Greece's credit score. The country's rating went up from CCCinitially to CCC+ and, at the start of 2016, even as high as B-. The bonds nevertheless
remain high risk. The economists justified their decision by stating that, in their view,
Greece would soon fulfil the conditions for the third bailout programme negotiated last
summer; this did indeed occur. The S&P auditors added that Greece is recapitalising the
biggest banks in the country and is making progress in consolidating the national budget. Fitch also sees a lower risk of sovereign default. While the agreement on a third
bailout package is positive, high risks nonetheless remain, according to the rating agency Fitch. Greece's credit rating was raised to CCC.
EUR bonds Greece (EURbn) – Maturity profile
Ratings overview
200
Outlook
Fitch
CCC
-
Moody’s
Caa3
Stable
B-
Stable
S&P
As at: 31 October 2016
180
Amount Outstanding (EURbn)
LT
160
140
120
100
80
60
40
20
0
GREECE - FIXED
GTB
GGB - STEP CPN
GGB - FLOATING
GGB - FIXED
Loan
2016
2017
2018
4,8
9,6
0,0
2019
0,0
0,0
0,0
5,2
0,0
1,9
0,7
5,8
2020
2022
2023
2024
2025
2026
0,0
0,0
0,0
1,8
0,0
1,8
0,0
1,7
0,0
1,4
1,3
1,3
10,1
0,0
0,2
>2026
185,3
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 70 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
4, 52w
GTB
13, 26w
GTB
Hellenic Republic Treasury
Bills (GTB)
Day count
act/360
act/360
Term
Security
up to 30y
GGB
10y to 30y
GGB
up to 30y
GGB
Hellenic Republic Government
Bonds (GGB)
Day count
act/act
act/act
act/360
Term
Security
20, 30y
GREECE
50y
GREECE
Hellenic Republic Govt
International Bond (GREECE)
Day count
act/act
act/act
Coupon type
zero
zero
Cpn frequency Issuance
discounted
as required
discounted
once a month
In the past, Hellenic Republic Treasury Bills have been issued once a month with maturities of 13 or 26 weeks. GTBs were issued regularly in 2016. The ten outstanding
bonds at the start of November collectively accounted for a volume of EUR 14.4bn.
Coupon type
fixed
step coupon
FRN (EUR006M)
Cpn frequency
annual
annual
annual
Issuance
as required
25/02/2012
as required
The issue of GGB 4 3/4 04/17/19 (EUR 3bn; now increased to EUR 4.0bn) marked the
successful return to the primary market. Hellenic Republic Govt Bonds (GGB) are currently in circulation with a total volume of EUR 117.0bn. Of that amount, fixed-interest
(26 securities) only make up around EUR 18.1bn. There are also 21 stepped coupon
bonds (EUR 29.6bn), which were created through the debt restructuring of the government bonds issued under Greek law on 25 February 2012. Three floaters represent a
volume of EUR 0.8bn. One variable interest bond (EUR 62.4bn) accounts for the main
debt liability and rounds off the outstanding volume.
Coupon type
fixed
FRN (CPTFEMU)
Cpn frequency
annual
annual
Issuance
irregular
30/03/2007
Of the six Hellenic Republic Government International Bonds (GREECE), four are denominated in euro (EUR 1.5bn). GREECE 2.085 07/25/57 (EUR 1.0bn) is linked to the
performance of the harmonised European consumer price index ex tobacco (Bloomberg: CPTFEMU), while the other three are fixed interest. The other two bonds are
denominated in JPY and mature in 2017.
Greek govt bonds – Yields (%)
21
Yield (%)
18
15
12
9
6
06.2015
08.2015
10.2015
12.2015
10 Yr
02.2016
04.2016
15 Yr
06.2016
08.2016
10.2016
20 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
Greece trails behind the
eurozone
With a national debt of 176.9% of GDP, Greek KPIs continue to be incredibly poor despite a slight downturn (180.1% in 2014), bringing up the rear of eurozone member
states. In contrast, the budget balance improved significantly in 2014 compared to 2013,
from -13.0% of GDP to -3.6% of GDP. This was also the best figure in the past ten
years. In 2015, however, there was another rise in the budget deficit to -7.2% of GDP.
Since Greece joined the eurozone, new borrowing has always been higher than the
-3.0% of GDP as stipulated by the Maastricht criteria. Accordingly, for economic reasons
the country should not have been admitted to the eurozone. The recent "strong" performance of the budget balance is due in particular to the intensive efforts made to consolidate the budget.
NORD/LB Fixed Income Research
Page 71 of 109
Issuer Guide 2016 – Eurozone (EU19)
Greek revenue is
rising slightly
At EUR 84.7bn (2014: EUR 83.2bn), revenue rose in 2015 for the first time since 2010.
In the period covered by the review, the highest figure was EUR 98.4bn (2008). While
taxes on income and wealth still followed the trend prevailing since 2010, falling from
EUR 17.4bn in 2014 to EUR 16.5bn in 2015, the other areas consistently posted an
increase. For example, social contributions rose marginally to EUR 24.4bn (2014: EUR
24.1bn) and taxes on production and imports increased to EUR 28.3bn (2014: EUR
27.6bn). This means that the latter item increased for the third year in succession. Although other revenue was unable to make up for its massive drop in the previous year,
the rise to EUR 15.4bn (2014: 14.4bn) was relatively high.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
180
0
160
-2
140
-4
120
-6
100
-8
80
-10
60
-12
40
-14
20
0
-16
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
Total expenditure – No
success in turning
the corner
Total expenditure amounted to EUR 89.9bn in 2014, a historic low for Greece since the
start of the financial and sovereign debt crisis. However, it was not possible to consolidate this positive trend in 2015. At EUR 97.4bn, expenditure rose by 8.3%. Capital transfers accounted for the largest proportion of the increase. This item, EUR 1.6bn in 2014,
rose to EUR 9.3bn in 2015. Compensation of employees remained relatively constant at
EUR 21.5bn (2014: EUR 21.8bn). Monetary social benefits were also not reduced once
again. In 2014, they were still EUR 38.4bn; in the following year they rose slightly to
EUR 39.0bn. Interest payable totalled EUR 6.7bn in 2015, down slightly on the previous
year's level of EUR 7.2bn. Other expenditure remained almost constant. It rose from
EUR 20.92bn in 2014 to EUR 20.95bn in 2015.
Privatisation: a start
has been made
Under the terms of the third bailout programme for Greece, state property worth EUR
50bn is to be sold. To this end, a 51% stake in Greece's largest port in Piraeus worth
EUR 280.5m changed hands in April of this year. In future, the Chinese shipping company Cosco will call the tune at the port. However, the purchase also requires that investments be made in the port. If these are made as scheduled, a further 16% can be
acquired for EUR 88m. Another partial privatisation had already been carried out in
December 2015. Fraport AG acquired the operational business at 14 regional airports.
The concession will inject a good EUR 1.2bn into the coffers of the Greek state as a
one-off payment. In addition, Fraport undertakes to make investments of around EUR
330m and pay an annual concession levy of EUR 22.9m. In total, the Greek state has
already flushed EUR 3.5bn into the national treasury by selling off the family silver.
NORD/LB Fixed Income Research
Page 72 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
So far, Greece has not presented any convincing proposal for reducing its national debt.
Although Greece remains very popular as a tourist destination, the inefficiencies in tax
collection are still very obvious. The prescribed radical cure is likely to have a positive
impact only over the long term. Due to rising social security costs resulting from the
crisis, we believe there is only a low chance of reducing expenditure in the way that is
proposed. The latest rise in expenditure supports this assessment. The crucial factor will
nevertheless be whether the country succeeds in achieving the objectives specified in
the reform programme. Although some privatisations have been successful, almost all
efforts end in strikes by the workforce in particular companies, or even in a general
strike, as in February of this year. The political situation in Greece remains unpredictable. The governing coalition only has a wafer-thin majority in parliament. Each new reform must be approved there – and each new reform promises to cause additional unrest among the general public. In these circumstances, a position of political stalemate
can rapidly be reached. The third bailout package promises a certain financial security,
at least for the time being. If the Eurogroup and the IMF are able to agree on specific
measures for a debt haircut after 2018, it remains open to question whether this will only
affect repayments on the bailout packages, or whether investors will again be required to
bear some of the burden. Overall, current developments do not raise hopes that Greece
will be able to stand on its own two feet after 2018.
Strengths & opportunities
Weaknesses & risks
+
Interest burden down due to debt haircut
–
Shattered state finances
+
Shipping, tourism
–
No proposal in place for reducing debt
+
Loan repayments deferred until far in future
–
Restrictive lending to private sector
+
Successful return to primary market
–
Tax evasion, corruption
+
Relatively high absolute risk premium
–
Privatisation proceeds disappointing
–
Political instability
–
Non-investment-grade rating
Source: NORD/LB Fixed Income Research
Comment – Bond market
The fact that Greece has now been able to get funding again on the normal capital markets is to be welcomed. We believe that, by regaining a presence on the primary market,
the country can allocate the risks where they belong, without burdening eurozone taxpayers with them. In the past few years, investors have had sufficient opportunity to
obtain an impression of Greece's real creditworthiness. As a result they are in a better
position than at the start of the financial crisis to decide whether they wish to invest in
Greek bonds. Greek bonds are rightly still only regarded as high-yield investments. Investment-grade conditions, which the country had enjoyed for a long time, have not been
justified at any time. The permanent political unrest and the poker game in the first half of
2015 have once again cost a lot of time that could have been used for the necessary
reforms. At present, Greece can only finance the running of the country through bailout
packages provided by the Troika and through T-bills.
NORD/LB Fixed Income Research
Page 73 of 109
Issuer Guide 2016 – Eurozone (EU19)
Portugal
Left-wing government intends to dial back reforms
Portugal is divided into three
NUTS 1 regions
and seven NUTS 2 regions:
As a business location, Portugal has faced growing international competition over the
last eleven years due to globalisation. With accession to the European Community (EC)
in 1986 and the associated fund inflows from what was then the EC, substantial improvements were initially made to industry and infrastructure. However, general government debt successively increased in the wake of the economic and financial crisis,
with the result that Portugal had to be bailed out and it received substantial financial
assistance from the European Commission, European Central Bank and IMF (known as
the “troika”) totalling EUR 78bn in 2011. In return, the government undertook to limit any
new budgetary debt - the target for 2015 was new debt of less than 3% - and agreed to
reforms to improve its competitiveness (structural reforms) and strengthen sustainable
growth. While Portugal has implemented important structural measures within the
framework of this support programme (a more liberal approach to labour law, reform of
the justice system, tax reforms, privatisation of state-owned companies), it must nevertheless be pointed out that, at 4.4% of GDP, the country was unable to comply with the
deficit limit, as was the case with Spain too. Portugal's gross domestic product amounted to EUR 179.4bn in 2015, which is the fourth increase in a row (2014: EUR 173.4bn;
2013: EUR 170.3bn). Looking at the seven NUTS 2 regions, it is clear that Lisbon [PT17]
contributes the largest share to Portugal's economic output at 36.9% and, alongside
Porto [PT11], it represents the most important conurbation in Portugal. Together with
Norte [PT11; 29.0%], Centro (PT) [PT16; 18.9%] and Alentejo [PT18; 6.4%], these four
regions account for more than 90% of the country's output. The regions Algarve [PT15;
4.2%], Madeira [PT30; 2.4%] and the Azores [PT20; 2.2%], which primarily depend on
tourism, complete the GDP with a share of almost 9%. The most important trading partner by far is Spain, followed by France and Germany.
[PT1] Continente:
[PT11] Norte
[PT15] Algarve
[PT16] Centro (PT)
[PT17] Lisboa
[PT18] Alentejo
[PT2; PT20] Açores
[PT3; PT30] Madeira
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Public admin, educ., human health, social
3 Industry (except construction)
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
10,4
92.226
179,4
Value
25,4
20,1
18,9
10,2
6,5
19,0
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Food, beverages and tobacco
9,0%
11,2%
1 Spain
25,5%
Road vehicles (including air-cushion vehicles)
11,7%
10,8%
2 France
12,4%
Petroleum, petroleum products and related materials 4,0%
7,3%
3 Germany
12,1%
Articles of apparel and clothing accessories
2,1%
5,9%
4 United Kingdom
6,9%
Crude materials
2,9%
5,3%
5 USA
5,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 5,1%
parts thereof 6(including
Angola non-electrical counterparts, n.e.s.,
4,3%
of electrical household-type e
Manufactures of metals, n.e.s.
3,1%
4,2%
7 Netherlands
4,1%
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
3,9%
n.e.s.
8 Italy
3,3%
Footwear
0,9%
3,8%
9 Belgium
2,3%
Textile yarn, fabrics, made-up articles, n.e.s., and related1,2%
products 3,7%
10 China
1,7%
Value
0,85
-7,108
9,925
6,13
2,313
1,48
-3,604
1,273
-0,942
-2,48
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Food, beverages and tobacco
8,8%
13,2%
1 Spain
33,0%
Road vehicles (including air-cushion vehicles)
8,9%
11,2%
2 Germany
12,9%
Petroleum, petroleum products and related materials 8,2%
10,1%
3 France
7,4%
Crude materials
4,1%
4,5%
4 Italy
5,4%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,4%
parts thereof 5(including
Netherlands
non-electrical counterparts, n.e.s.,
5,1%
of electrical household-type e
Medicinal and pharmaceutical products
5,3%
4,1%
6 United Kingdom
3,1%
Articles of apparel and clothing accessories
3,3%
3,4%
7 China
3,0%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,2%
8
8 Belgium
2,8%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
3,2%
n.e.s.
9 Angola
1,9%
Iron and steel
2,5%
3,1%
10 USA
1,6%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
Mineral oil reserves
discovered in Portugal
Once again, mineral oil and mineral oil products accounted for a significant share of
Portugal's imports in 2015, but they could be lower in future. According to reports in the
Portuguese weekly newspaper Sábado, substantial mineral oil reserves (at least one
billion barrels) have been discovered in the Province of Alentejo and in deep water off
the coast. In addition, natural gas reserves worth around a quarter of Portugal's economic output have also apparently been discovered. However, many questions still require
answers. For example, environmental organisations have been protesting for months
against oil production in the Algarve. This may also entail risks for tourism and fishing in
the region. However, advocates of this policy hope that it will mean that the financially
stricken EU country could become less dependent on energy imports. It remains to be
seen if, or when, the government decides to extract these natural resources, especially
against the backdrop of the current low global market prices.
NORD/LB Fixed Income Research
Page 74 of 109
Issuer Guide 2016 – Eurozone (EU19)
Portuguese impress in field
of renewable energies
Portugal has set ambitious goals in terms of environmental, climate and energy policies,
which in part go above and beyond international and European regulations: By 2020,
greenhouse gases should be reduced by 23%, while a total of 31% of the country’s
overall energy requirements should be covered by renewable energies. Furthermore,
energy efficiency should be improved by 25% and, last but not least, 121,000 new jobs
are to be created in industrial “clusters” in the fields of renewable energies and energy
efficiency. In Q1 2016, the proportion of renewable energies in Portugal’s overall energy
supply was already a good 75%, tantalisingly close to its overall goal. Wind and
hydroelectric power are the core elements of this, although Portugal has incredibly
favourable underlying potential for photovoltaic energy. Since the start of 2015,
households and businesses have been permitted by law to produce electricity that is
used exclusively for their own requirements. This should provide fresh impetus to boost
the expansion of this energy source in particular. New hydroelectric plants are to be
established on a gradual basis in northern Portugal by 2023. However, the fact that this
makes the country reliant on hydroelectric power and will slow down diversification
efforts must be viewed critically, especially in drought years such as 2015. In terms of its
dependency on expensive energy imports, Portugal has also set a target of covering at
least 10% of its final energy supply in the transport sector via renewable energies by
2020. Portugal has already established a fairly extensive network of charging stations
for electric cars.
IGCP finance agency
The IGCP (Instituto de Gestão do Credito Público) acts as the state finance agency. A
net total of some EUR 7.0bn is to be raised in 2016. ICGP focuses on the issue of two
classes of securities. In the short maturity segment, Bilhetes do Tesouro (BT) are
issued, although these will play only a minor role in this financial year. In long-term
maturities, the agency offers Obrigações do Tesouro (OT) and their total volume stands
at EUR 111.6bn. Alongside these standard instruments, EUR-EMTN (EUR 3.3bn)
complete the product range. A total volume of EUR 131.0bn is presently in issue. Up-todate information is provided by the IGCP in its Investor Presentation January 2016 and
Funding Outlook 2016.
EUR bonds Portugal (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
BB+
Stable
Moody’s
Ba1
Stable
BB+u
Stable
S&P
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 75 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
max. 50y
Security
OT; PGB
Day count
act/act
Obrigações do Tesouro (OT)
Coupon type
fixed
Cpn frequency
annual
Issuance
irregular
Essentially, Obrigações do Tesouro (OT) are Portugal's main funding instruments with
maturities of between 1 and 50 years. Apart from bonds with maturities of over
100 years which were issued in the 1940s, the OT with the longest residual maturity is
PGB 4.1 02/15/45, which was only issued at the beginning of 2015. As Portugal was
under the Financial Assistance Programme until 17 May 2014, there were no regular
auctions. The tap issue of PGB 5.65 02/15/24 (EUR 6.75bn) on 23 April 2014 was an
important step in the country's return to the primary market. In principle, OTs can be
placed in the primary market by syndication, auction or as tap issues. The OT issuance
calendar is published at the beginning of each year or quarter. The auctions are generally carried out on the second Wednesday of the each month. Stripping of OTs is also
possible in principle.
Term
Security
Day count
Coupon type Cpn frequency Issuance
3, 6, 9, 12m
BT; PORTB
act/360
zero
discounted
monthly, 3rd Wednesday
18m
BT; PORTB
act/360
zero
discounted
quarterly
Bilhetes do Tesouro (BT)
Bilhetes do Tesouro (BT) are money market paper with a maximum maturity of
18 months. They are generally issued via auction on the first and/or third Wednesday of
the month. These are announced in detail in the BT issuance calendar. Since their
introduction in 1985, BTs were the most important source of funding for the Portuguese
finance agency IGCP up until 1998. There was then a temporary phase from 1999 to
2003 when no BTs were issued because attention turned to medium and long-term
government bonds (OT) with the introduction of the euro. In 2013, BTs were included in
the programme again in order to complete the short-term maturity spectrum.
Term
Security
5, 7, 10y (EUR)
PORTUG
8y (EUR)
PORTUG
5¼y (EUR)
PORTUG
diverse (FX)
PORTUG
Portugal Govt International
Bond (PORTUG)
Day count
act/360
act/360
act/360 NonEOM
various
Index
FRN (EUR003M)
FRN (EUR006M)
various
diverse
Cpn frequency
discounted
discounted
half-yearly
various
Issuance
as required
as required
29 October 2012
irregular
Portugal's EUR 3.3bn EMTN programme includes four FRNs with a volume of EUR 50m
each. PORTUG 4.6 10/17/22 (EUR 1.3bn) was issued on 14 February 2014. In addition,
PORTUG 3.3 02/25/26 (EUR 1.8bn) was placed in February this year. Foreign currency
bonds denominated in USD, GBP and NOK are also in circulation, while those issued in
JPY have been repaid.
6
6
5
5
4
4
3
3
2
2
1
1
0
06.2015
Yield (%)
Yield (%)
Portugal govt bonds – Yields (%)
0
08.2015
2 Yr
10.2015
12.2015
4 Yr
02.2016
5 Yr
04.2016
7 Yr
06.2016
10 Yr
08.2016
10.2016
30 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 76 of 109
Issuer Guide 2016 – Eurozone (EU19)
Slight decline
in Portugal's general
government debt
Portugal's general government debt stood at 129.0% of GDP in 2015, which represents
a slight fall on the previous year (2014: 130.2% of GDP). The budget deficit also
continued to ease. It amounted to -4.4% of GDP in 2015, an improvement of 0.1 percentage points on the year previous. However, the planned deficit limit of 3% in 2015
was not achieved. The Portuguese government, seated in Lisbon, will now attempt to
achieve this as quickly as possible.
Revenue increased again
With revenue of EUR 78.7bn (2014: EUR 77.2bn), Portugal was again able to record an
increase in the past year. This was mainly attributable to Portugal’s largest revenue item
taxes on production and imports, which rose by EUR 1.5bn to EUR 26.1bn (2014: EUR
24.6bn) in 2015. At EUR 19.5bn (2014: EUR 19.0bn) taxes on income and wealth
achieved a new record high, while social contributions also rose slightly to EUR 20.7bn
(2014: EUR 20.4bn). Other revenue fell for the third time in succession to approximately
EUR 12.4bn in 2015.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
140
0
130
120
-2
110
100
-4
90
80
70
-6
60
50
-8
40
30
-10
20
10
0
-12
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
Total expenditure well down
At EUR 86.6bn (2014: EUR 89.7bn), expenditure fell significantly against the previous
year. This was above all attributable to capital transfers, which at nearly EUR 3.4bn
were halved in comparison with last year (2014: EUR 6.8bn). Payable employee
compensation, which acts as a barometer for savings in the public sector, fell slightly in
2015 to EUR 20.3bn (2014: EUR 20.5bn). Payable taxes also fell to EUR 8.2bn (2014:
EUR 8.5bn). Monetary social security benefits and social transfers in kind, which in 2015
amounted to approximately 40% of overall expenditure, rose slightly to EUR 34.5bn
(2014: EUR 34.1bn). Other expenditure totalled EUR 20.2bn (2014: EUR 19.8bn), and
therefore again remained below the record value for this time series (2010: EUR
26.6bn).
New government takes steps
to ease budget situation
The general election in Portugal on 4 October 2015 saw a minority government led by
the Socialist Party (PS) come to power, supported by the Left Bloc (B.E.), the
Portuguese Communist Party (PCP) and the Ecologist Party "The Greens" (PEV) in
forming a parliamentary majority. The coalition partners under the leadership of the new
Prime Minister António Costa intend to no longer give priority to economic matters in
governmental activity. To this end, reforms aimed at dialling back the key measures
taken by the Conservative predecessor government, which focused on a strict course of
austerity between 2011 and 2015, have already been put into motion. These will
adversely affect Portugal’s national budget in the future (withdrawal of pension
reductions, reintroduction of the 35-hour working week). Particularly in the face of
Portugal’s tight budgetary position, it remains to be seen just how the new reforms affect
the Portuguese economy.
NORD/LB Fixed Income Research
Page 77 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
Portugal's determination to bring its public finances in order deserves recognition. Since
May 2014, Portugal, which is the poorest country in Western Europe, has been back on
its own two feet again in financial terms. After tough years of austerity, Portugal's
economy recorded growth of 1.5% in 2015. The unemployment rate has also fallen
continually since 2013 (17.5%) and stood at 12.6% in 2015. Recently, the rate had fallen
to 10.8%. Should efforts to develop the country's natural resources intensify, this would
make Portugal less dependent on mineral oil and natural gas imports on the one hand,
and develop another revenue stream for restructuring public finances on the other.
Taking climate change and raw material shortages into consideration, Portugal is in the
vanguard in Europe in the field of renewable energies. The law on own use of any
electricity generated represents further progress in the decentralisation of electricity
production and additional funding from private investors is expected. The Iberian
peninsula therefore is keen to promote the view of Portugal as something of a model
pupil. However, there is also a darker side to this little success story of recent years. The
improvement in the macro-economic situation does not translate into tangible day-to-day
benefits for a significant proportion of the Portuguese population. The consolidation of
Portugal’s economic situation could come under renewed threat, particularly in view of
the new government and its reforms, which seek to dial back the key policies of the
previous government’s austerity regime and will increasingly negatively impact the
country’s national budget. So far, the EU has not invoked any sanctions against Portugal
on account of its non-compliance with Maastricht deficit targets. However, should
Portugal once again record a budget deficit the wrong side of the 3% mark in 2016, this
discussion will start up again. One thing is for sure: Portugal remains vulnerable with a
debt level of 129.0% of GDP and a tight budget situation.
Strengths & opportunities
Weaknesses & risks
+
Export of more higher value goods
–
Logistics disadvantages due to peripheral position
+
Low wage costs
–
High debt and payable interest burden
+
Good transport infrastructure
–
Emigration of skilled workers (brain drain)
+
Progress in reduction of debts
–
Constitutional court limits austerity measures
+
Positive effects of reforms
–
Risk of political instability
+
Efficiency enhancement in public sector
–
Dependency on foreign investors
+
Growth potential in renewable energies
–
Threat of sanctions for non-compliance with
Maastricht criteria
Source: NORD/LB Fixed Income Research
Comment – Bond market
Portuguese government bonds sit in the BB segment and are thus categorised as
speculative investments. As a result of the relatively high ratio of foreign investors, who
generally switch government bonds around more frequently than domestic investors,
yields on Portuguese OTs are always exposed to high fluctuations. We assume that
Portugal will continue to be regularly represented in the capital market.
NORD/LB Fixed Income Research
Page 78 of 109
Issuer Guide 2016 – Eurozone (EU19)
Slovakia
Volkswagen builds logistics centre in Slovakia
Slovakia is divided into four
NUTS 2 regions:
Slovakia (GDP 2015: EUR 78.1bn) emerged from the division of the former Czechoslovakia in 1993. It joined the EU in 2004 and the euro was introduced at the beginning of
2009. The capital Bratislava is located only 55 km from Vienna. With a budget deficit of 3.0% of GDP and sovereign debt of 52.9% of GDP (both 2015), Slovakia’s economic
data are quite impressive compared with other European countries. Slovakia is an important distribution hub for Russian natural gas, which is supplied by pipeline (Transgas)
to Veľké Kapušany [SK04] and passed on to the Czech Republic, Austria and Germany.
Slovakia is also the largest user of nuclear power in the eurozone after France. Bratislava [SK01; share of national GDP: 28%] is the most densely populated region in the
country and the preferred location for foreign direct investment. However, with a share of
roughly one third of total economic output, Western Slovakia [SK02] ranks first, still
ahead of the Bratislava region. External trade is of central importance to the Slovakian
economy. In 2015, the overall volume of exports totalled EUR 67.9bn, representing an
increase of 4.9% year on year. Slovakia obtains over 60% of imports from other EU
member states. Its most important trading partner for imports and exports alike is Germany, which is also the main country of origin for direct foreign investment in Slovakia.
For example, large multinationals including Volkswagen and Hyundai/Kia play a major
role in the Slovakian automotive industry. In 2015, one million new cars were built in
Slovakia for the first time, the highest per capita vehicle production figure in the world.
The construction of a new logistics centre for VW at a cost of EUR 150m is ongoing and
underlines the country’s importance as a location.
[SK01] Bratislavský kraj
[SK02] Západné Slovensko
[SK03] Stredné Slovensko
[SK04]Východné Slovensko
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Industry (except construction)
2 Trade, transport, accomodation, food serv.
3 Public admin, educ., human health, social
4 Professional, scientific, technical activities
5 Construction
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
5,4
49.035
78,1
Value
26,7
22,8
13,5
7,7
7,6
21,8
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
11,7%
26,9%
1 Germany
22,7%
Telecommunications and sound-recording and reproducing
2,7%
apparatus14,0%
and equipment
2 Czech Republic
12,5%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 6,2%
parts thereof 3(including
Poland non-electrical counterparts, n.e.s.,
8,5%
of electrical household-type e
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
5,6%
n.e.s.
4 Hungary
5,7%
Iron and steel
2,8%
4,5%
5 Austria
5,7%
Manufactures of metals, n.e.s.
3,1%
3,6%
6 France
5,6%
Food, beverages and tobacco
9,0%
3,4%
7 United Kingdom
5,5%
Rubber manufactures, n.e.s.
0,9%
3,1%
8 Italy
4,5%
Petroleum, petroleum products and related materials 4,0%
2,9%
9 Spain
2,7%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
2,8%
8
10 Netherlands
2,4%
Value
1,55
4,284
0,147
0,161
-0,024
0,057
1,347
0,764
7,182
-6,204
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
8,9%
14,2%
1 Germany
19,3%
Telecommunications and sound-recording and reproducing
4,1%
apparatus11,4%
and equipment
2 Czech Republic
17,4%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 7,9%
parts thereof 3(including
Austria non-electrical counterparts, n.e.s.,
9,2%
of electrical household-type e
Food, beverages and tobacco
8,8%
5,3%
4 Hungary
6,3%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
5,2%
n.e.s.
5 Poland
6,3%
Petroleum, petroleum products and related materials 8,2%
4,8%
6 South Korea
5,5%
Manufactures of metals, n.e.s.
2,9%
4,2%
7 Russia
5,2%
Iron and steel
2,5%
3,4%
8 China
4,1%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,4%
8
9 France
3,9%
Professional, scientific and controlling instruments and apparatus,
2,1%
n.e.s.
3,4%
10 Italy
3,5%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015.
EUR bonds Slovakia (EURbn) – Maturity profile
Ratings overview
9
LT
Outlook
Fitch
A+
Stable
Moody’s
A2
Stable
S&P
A+
Stable
8
Amount Outstanding (EURbn)
As at: 31 October 2016:
7
6
5
4
3
2
1
0
SLOVTB
SLOVAK
SLOVGB
2016
1,0
1,5
2017
1,0
4,2
2018
2019
2020
2021
2023
2024
2025
2026
>2026
4,0
2,8
3,0
1,3
0,5
8,2
1,0
3,0
1,3
3,0
Source: Ardal, Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 79 of 109
Issuer Guide 2016 – Eurozone (EU19)
The funding agency
Ardal has existed since 2004
In 2002, Slovakia reformed its financial management and established the funding agency Ardal two years later. Slovakia issues traditional money market and capital market
securities. Treasury bills are called Štátne pokladničné poukážky (ŠPP), while government bonds are identified as Štátny dlhopis (ŠD) in the original. ŠD are currently available in three different coupons (fixed, floating, zero). Both auctions and syndications are
used when placing bonds – with the securities to be placed being split equally in each
case. Ardal provides a forecast in the current Investors’ Presentation (January). The
investor base is to be expanded further in 2017. Foreign currency bonds are available in
CHF, USD, JPY and NOK.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
1 to 12m
ŠPP; SLOVTB
act/act
zero
discounted
irregular
MOF Slovakia Treasury Bill
MOF Slovakia Treasury Bills are zero coupon bonds, which are placed with a maximum
(SLOVTB)
maturity of twelve months. According to Slovakia’s Ardal (Debt and Liquidity Management Agency), these securities are only held by residents (banks and legal entities).
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
5y to 20y
ŠD; SLOVGB
act/act
fixed
annual
irregular
6,10y
ŠD; SLOVAK
act/act
fixed
annual
irregular
3, 5, 6y
ŠD; SLOVGB
act/360
FRN (EUR006M)
half-yearly
irregular
3y
ŠD; SLOVGB
act/act
zero
discounted
04 June 2011
Slovakia Government Bonds There are 17 Slovakia Govt. Bonds denominated in euro placed in the market at present
(SLOVGB; SLOVAK)
(EUR 30.3bn), of which 16 carry fixed coupons (EUR 30.8bn). The last bond placed was
SLOVGB 0 11/13/23 (EUR 1.04bn), which was placed at the end of April. In previous
years, a long-dated bond has always been issued in January. The only zero bond expired in 2014 and EUR 1.5bn was outstanding. At present, EUR 1.5bn is outstanding
from a FRN, where the reference index is 6M-Euribor. In our opinion, SLOVAK 4 3/8
05/15/17 (EUR 1bn) is also a normal government bond so we list it here and not in the
following section.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
10y, 15y (EUR)
ŠD; SLOVAK
act/act
fixed
annual
as required
10y, 15y (FX)
ŠD; SLOVAK
act/act
fixed
annual
as required
Slovakia International
At present, there are three euro-denominated Slovakian bonds issued under the SLOGovernment Bond
VAK ticker outlined above, which were placed under the Slovakia International Govern(SLOVAK)
ment Bond label. Moreover, they are SLOVAK 4 03/26/21 and SLOVAK 3.6 02/21/34,
which are worth EUR 1bn and EUR 0.5bn respectively. These bonds are from before the
time Slovakia acceded to the euro. The Slovaks have recently made use of Norwegian
krone, having previously placed yen bonds and issues denominated in Swiss francs.
The U.S. dollar also plays a minor role.
Slovakia govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06-2015
-1
08-2015
10-2015
2 Yr
12-2015
4 Yr
02-2016
04-2016
5 Yr
06-2016
08-2016
10-2016
10 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 80 of 109
Issuer Guide 2016 – Eurozone (EU19)
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
0
90
-1
80
-2
70
-3
60
-4
50
-5
40
-6
30
-7
20
-8
10
-9
0
-10
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
2015
Government consolidated gross debt (% of GDP, lhs)
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Source: Eurostat, NORD/LB Fixed Income Research
Slovakia’s biggest plus points are its positive values with regard to Maastricht criteria
and the competitiveness of its automotive industry. The austerity measures implemented
in the past few years have only led to a marginal increase in expenditure. Important and
necessary investments remain incomplete too. In this regard, financial aid for areas such
as education and the labour market would be helpful, in our view. This would increase
Slovakia’s ability to compete on the international stage. Overall, membership of the EU
and eurozone has helped to expand external trade and achieve increased diversity in
terms of trade partners. Its geographic location favours in principle a focus on the European market, while exports to Asia and America are of little relevance to Slovakia. The
accession of Slovakia’s neighbours, Czechia and Poland, would in our view be of significant benefit to Slovakia. Around one-quarter of Slovakian value added is derived from
industry (excluding construction). Accordingly, the country’s energy requirements are
similarly high, covered for the most part by nuclear energy. In visual terms at least, this
reduces the proportion of fossil fuels in Slovakia’s imports. Moving forward, we are of
the view that an increased expansion of the service sector would be a logical move in
order to reduce dependence on energy imports.
Strengths & opportunities
Weaknesses & risks
+
Strong, stable economic growth
–
Dependence on exports
+
Hub for Eastern European business
–
Lack of investment in R&D
+
Industrial tradition
–
Small domestic market, minimal purchase power
+
Good debt situation
–
Focus on automotive and electronics industry
+
EU funds for environmental technology projects
in particular
–
Regional differences in
economic development
+
Low wages but a highly educated workforce
Source: NORD/LB Fixed Income Research
Comment – Bond market
Slovakian government bonds are a not very liquid investment in the A segment. Because
of the small number of government bonds and the limited liquidity on the secondary
market, Slovakian bonds are primarily of interest for buy-and-hold investors who want to
assume a broad international position for reasons of risk diversification.
NORD/LB Fixed Income Research
Page 81 of 109
Issuer Guide 2016 – Eurozone (EU19)
Luxembourg
Financial sector continues to dominate
Luxembourg is not divided
With a GDP of EUR 52.1bn, Luxembourg provided approximately 0.5% of the eurozone’s economic output in 2015. The Grand Duchy was a founder member of the present EU in 1952 (European Coal and Steel Community) and has established a role primarily as an internationally significant financial centre. Together with the European institutions (including the EU Parliament, ECJ, EFSF) as employers, this circumstance leads
to one of the highest GDP per capita in the world (EUR 91,600 in 2015, current prices).
Together with Maastricht criteria compliance (budget surplus of 1.2% in 2015; total debt
is 21.4% of GDP), the country’s economic strength is obvious. The financial sector determines Luxembourg’s economic life and in doing so makes up the majority of gross
value added. Because the domestic market is very small, more than 80% of all goods
and (financial) services are exported. Luxembourg’s most important trading partners are
Germany, France and Belgium, but Asia is also becoming increasingly important (China
ranking third for imports). Luxembourg benefits not only from its geographical location
but also from a modern transport infrastructure. The Grand Duchy has a well-developed
national road network, a rail network and an international airport (Findel), which ranks as
one of the more important airports in Europe in terms of freight volume. Luxembourg is
connected to both the German and the French rail networks. Mertert, the inland port
located on the Mosel, is also of considerable significance to Luxembourg because of the
connection to the waterway systems of its two large neighbours.
into different NUTS regions
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Financial and insurance activities
2 Trade, transport, accomodation, food serv.
3 Public admin, educ., human health, social
4 Professional, scientific, technical activities
5 Real estate activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
0,6
2.586
52,1
Value
25,4
17,6
15,8
10,9
9,6
20,7
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Telecommunications and sound-recording and reproducing
2,7%
apparatus14,8%
and equipment
1 Germany
Iron and steel
2,8%
12,4%
2 Belgium
Food, beverages and tobacco
9,0%
7,9%
3 France
Professional, scientific and controlling instruments and apparatus,
2,4%
n.e.s.
6,4%
4 United Kingdom
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
5,6%
8
5 Italy
Road vehicles (including air-cushion vehicles)
11,7%
5,0%
6 Netherlands
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
4,7%
n.e.s.
7 Spain
Non ferrous metals
1,7%
3,5%
8 Czech Republic
Textile yarn, fabrics, made-up articles, n.e.s., and related1,2%
products 3,4%
9 USA
Plastics in non-primary forms
1,0%
3,2%
10 Switzerland
Weight
22,1%
17,2%
17,0%
4,9%
4,7%
4,1%
2,9%
2,7%
2,7%
2,5%
Value
2,36
-6,337
23,881
0,753
1,123
22,005
-2,233
2,811
74,567
-86,338
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Telecommunications and sound-recording and reproducing
4,1%
apparatus11,9%
and equipment
1 Belgium
27,7%
Food, beverages and tobacco
8,8%
10,3%
2 Germany
22,2%
Road vehicles (including air-cushion vehicles)
8,9%
9,7%
3 China
11,9%
Other transport equipment; confidential traffic of section 3,5%
7
5,9%
4 France
9,5%
Petroleum, petroleum products and related materials 8,2%
5,8%
5 USA
8,4%
Crude materials
4,1%
5,8%
6 Netherlands
4,3%
Professional, scientific and controlling instruments and apparatus,
2,1%
n.e.s.
5,0%
7 Mexico
4,2%
Iron and steel
2,5%
3,2%
8 Italy
2,1%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 3,1%
parts thereof 9(including
United Kingdom
non-electrical counterparts, n.e.s.,
1,2%
of electrical household-type e
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,1%
8
10 Japan
1,1%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
EUR bonds Luxembourg (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
AAA
Stable
Moody’s
Aaa
Stable
S&P
AAA
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 82 of 109
Issuer Guide 2016 – Eurozone (EU19)
Trésorie de l’Etat is
responsible for debt
management
Given its strong public finances, Luxembourg did not make any use of the primary market for a long time, only using bank loans for funding purposes. However, on 28 September 2008, the Grand Duchy initially needed EUR 2.5bn for a joint rescue package by
the Benelux countries for Fortis and this was rapidly followed by an additional EUR
376m for Dexia. To finance its participation in rescuing the two banks, Luxembourg
issued bonds totalling EUR 5bn in 2008, 2010 and 2012, which were followed in March
2013 by an initial EUR 750m and a further EUR 300m in August. The first bond following
the self-imposed pause was a five-year government bond in 2008. Before that, the last
issue of a Luxembourg bond was in 1997, which was repaid ten years later. There are
no marketable money market securities. The Luxembourg Treasury (Trésorie de l’Etat)
acts as debt manager and its website contains the now outdated Presentation to Investors (June 2013). According to Eurostat, over 90% of Luxembourg citizens hold Luxembourg debt securities, which is the highest figure among all 19 eurozone countries.
Term
Security
5, 10, 15, 30y
LGB
Luxembourg Govt. Bond
(LGB)
Day count
act/act
Coupon type
fixed
Cpn frequency
annual
Issuance
as required
Luxembourg currently has five bonds outstanding, of which only three bonds serve the
ten-year segment. This trio totals EUR 5bn. A fifteen-year bond (LGB 2 1/4 03/19/28)
has an outstanding volume of EUR 750m and the long-dated bond (LGB 2 3/4 08/20/43)
currently stands at EUR 300m. The five-year segment is currently unoccupied. With
outstandings of only EUR 6.1bn, the market has to be described as very narrow.
Luxembourg govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06.2015
-1
08.2015
10.2015
12.2015
LGB 03/21/2022
02.2016
04.2016
LGB 03/19/2028
06.2016
08.2016
10.2016
LGB 08/20/2043
Source: Bloomberg, NORD/LB Fixed Income Research
Budget surplus of
1.2% of GDP
Luxembourg is one of the few members of the eurozone to comply with both Maastricht
criteria. The country posted another budget surplus in relation to GDP of 1.2% in 2015
(2014: 0.6%). The Grand Duchy is also a star performer with regard to sovereign debt,
which amounts to a low 21.4% of GDP (2014: 23.6%). It is only outdone by Estonia
(9.7% of GDP) in this category.
NORD/LB Fixed Income Research
Page 83 of 109
Issuer Guide 2016 – Eurozone (EU19)
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
5
90
4
80
70
3
60
50
2
40
1
30
20
0
10
0
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
-1
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Government consolidated gross debt (% of GDP, lhs)
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Source: Eurostat, NORD/LB Fixed Income Research
Luxembourg relies on the financial sector more than any other country in the single currency zone. In terms of gross value added, it clearly outperforms even the UK and Switzerland. In this respect, it can only be a very difficult task to increase the significance of
other sectors and to strengthen the domestic economy through diversification. Luxembourg is very well placed not just with regard to the Maastricht criteria. Government finances are sound, which puts the government in the comfortable position of being able
to initiate the necessary measures in the pension and healthcare systems without any
pressure. While expenditure will increase because of demographic factors, the increase
in income resulting from indirect taxes is likely to be an adequate means over the next
few years. In our opinion, the Grand Duchy is foregoing too many receipts here. For
instance, a more broadly based application of the standard value added rate would not
disadvantage Luxembourg, even in a European context.
Strengths & opportunities
Weaknesses & risks
+
Substantial purchasing power and high standard
–
of living
+
European institutions
–
Lack of investment in R&D
+
Favourable geographical situation
–
Demographic change
+
Attractive tax law
–
Relatively low innovation and technological intensity
+
Very good debt situation
Dependence on the financial sector
Source: NORD/LB Fixed Income Research
Comment – Bond market
Luxembourg government bonds are a sound, not very liquid investment in the AAA segment. Because of the small number of securities and the limited liquidity in the secondary
market, the Grand Duchy’s sovereign bonds are primarily of interest for buy-and-hold
investors, who want to be broadly positioned internationally in the AAA segment for reasons of risk diversification.
NORD/LB Fixed Income Research
Page 84 of 109
Issuer Guide 2016 – Eurozone (EU19)
Slovenia
Long-term turnaround achieved
Slovenia is divided into two
NUTS 2 regions and 12 NUTS
3 regions:
The modern Republic of Slovenia emerged in 1991 as a result of the declaration of independence by the former Yugoslavian Socialist Republic of Slovenia. Slovenia joined
both the EU and NATO in 2004, while in 2007 it become the first (and so far only) country in the former Yugoslavia to officially introduce the euro. Today, EU accession is
viewed as the trigger for a bubble in the property sector, which together with the financial
crisis of 2009 led to an economic crisis. To ease the pressure on the stricken banking
sector and reintroduce a degree of stability to its financial system and economy, the
Bank Asset Management Company (BAMC) was founded as a bad bank in 2013. The
resultant burden on the Slovenian national budget led to breaches of the Maastricht
criteria. While government debt, at 83.2% of GDP, is still way above the 60% mark,
Slovenia was able to comply with the new debt limit of 3% by recording 2.9% of GDP in
2015. Overall, the country has completed something of a turnaround – the speed at
which debt was being accumulated has been significantly slowed, new debt levels are in
line with the Maastricht criteria and GDP growth of approximately 1.8% is forecast for
2016. The country’s main trading partners are Germany and Italy. Trade with third countries is being adversely affected by defaults arising on account of the Ukraine crisis. The
Adriatic port of Koper, which is only a few kilometres from Trieste (Italy), will be deepened by 2018 and a container terminal will be added. The two largest cities are the capital Ljubljana (west) and Maribor (east). Foreign trade is dominated by machinery and
transport equipment. Other mainstays of the economy include metal processing, the
chemicals and pharmaceuticals industry as well as tourism.
[SI01] Vzhodna Slovenija:
[SI011] Pomurska
[SI012] Podravska
[SI013] Koroška
[SI014] Savinjska
[SI015] Zasavska
[SI016] Spodnjeposavska
[SI017] Jugovzhodna Slovenija
[SI018] Notranjsko-kraška
[SI02] Zahodna Slovenija:
[SI021] Osrednjeslovenska
[SI022] Gorenjska
[SI023] Goriška
[SI024] Obalno-kraška
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Industry (except construction)
2 Trade, transport, accomodation, food serv.
3 Public admin, educ., human health, social
4 Professional, scientific, technical activities
5 Real estate activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
2,1
20.273
38,5
Value
25,7
20,6
17,4
9,0
7,5
19,9
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
11,7%
15,6%
1 Germany
19,1%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 9,0%
parts thereof 2(including
Italy
non-electrical counterparts, n.e.s.,
10,6%
of electrical household-type
Medicinal and pharmaceutical products
6,6%
8,4%
3 Austria
7,9%
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
5,2%
n.e.s.
4 Croatia
6,8%
Food, beverages and tobacco
9,0%
5,1%
5 Slovakia
4,7%
Crude materials
2,9%
4,4%
6 Hungary
4,4%
Manufactures of metals, n.e.s.
3,1%
4,4%
7 France
4,2%
Iron and steel
2,8%
4,0%
8 Poland
3,9%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
3,5%
8
9 Serbia
3,4%
Non ferrous metals
1,7%
2,8%
10 Russia
3,0%
Value
2,10
0,646
1,961
1,345
0,659
-0,044
-2,932
-0,599
3,981
-6,276
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Road vehicles (including air-cushion vehicles)
8,9%
14,1%
1 Germany
16,6%
Food, beverages and tobacco
8,8%
8,5%
2 Italy
13,7%
Petroleum, petroleum products and related materials 8,2%
6,6%
3 Austria
10,3%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 6,4%
parts thereof 4(including
China non-electrical counterparts, n.e.s.,
5,5%
of electrical household-type
Crude materials
4,1%
5,4%
5 Croatia
5,2%
Iron and steel
2,5%
4,6%
6 Turkey
4,1%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
4,2%
n.e.s.
7 Hungary
3,8%
Medicinal and pharmaceutical products
5,3%
3,9%
8 South Korea
3,6%
Telecommunications and sound-recording and reproducing
4,1%
apparatus3,4%
and equipment
9 France
3,2%
Non ferrous metals
2,1%
3,4%
10 Netherlands
3,1%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
EUR bonds Slovenia (EURbn) – Maturity profile
Ratings overview
LT
Fitch
Moody’s
S&P
Outlook
A-
Stable
Baa3
Positive
A
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 85 of 109
Issuer Guide 2016 – Eurozone (EU19)
The Ministry of Finance
determines the issue
of money and capital
market securities
Slovenia has no specialised financial agency, so that classic money market (Zakladne
menice) and long-term capital market papers (Obveznice) are issued directly by the
Ministry of Finance (MOF). The Ministry’s website gives a complete overview of all outstanding securities. Only money market securities are regularly launched on the primary
market by auction. Bonds with a longer term maturity, which account for more than three
quarters of the total volume, represent the most important sources of funding and, as a
rule, take the form of syndicated bond issues. These securities are primarily traded on
MTS Slovenia or the Slovenian Stock Exchange. Slovenia’s funding requirement for
2016 is also indicated on the website, where it is quoted at a maximum of EUR 6.8bn.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
3m
TZ; SLVNTB
act/360
zero
discounted
as per calendar
6m
SZ; SLVNTB
act/360
zero
discounted
as per calendar
12m
DZ; SLVNTB
act/360
zero
discounted
as per calendar
18m
OZ; SLVNTB
act/360
zero
discounted
as per calendar
Slovenia Ministry of
There are four different maturities in the short-term maturity segment. There is currently
Finance (MOF) T-Bill
an outstanding volume of EUR 7.0m in three-month paper (TZ16-er series). In terms of
Auction calendar SLVNTB
the six-month maturity segment (SZ87 up to SZ90), a total of four bonds account for
EUR 31.0m. There are currently no T-Bills with nine-month maturities outstanding as at
the end of October 2016. A further EUR 307.8m (DZ66 up to DZ72) is attributable to
bonds issued in the 12-month maturity segment. The 18-month maturity series OZ,
which had previously accounted for over half of the overall volume of money market
paper, is composed of three T-Bills which together total EUR 243.7m.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
3y, 5y, 7y, 10-15y, >15y
RS; SLOREP
act/act
fixed
annual
irregular
Slovenia Govt. Bond
(SLOREP)
Auction calendar SLOREP
A distinction is now made between five categories in the medium to long-term maturity
segment. At the present moment, EUR 2,751m is outstanding in the three-year maturity
segment. Five-year paper accounts for EUR 1,869m. As the Slovenian homepage
transparently reveals, the emissions calendar is practically always empty. Nonetheless,
a total of two bonds were issued over 16 and 24 years in February and October this
year. The maturities are very uniformly spread and there will be a funding requirement of
around EUR 2.8bn in 2017. In the ultra-long maturity range (>15y), there are two new
bonds (maturities 2032 and 2040; EUR 3.0bn in total). Since 2008, a minimum volume
of EUR 1.0bn has applied to new issues – although there are exceptions which prove
this rule (SLOREP 3 ⅛ 08/07/45).
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
10y (EUR)
RS; SLOVEN
act/act
fixed
annual
as required
10y (USD)
RS; SLOVEN
ISMA-30/360
fixed
half-yearly
as required
Slovenian International Govt. There is currently only one euro-denominated bond in this category in the form of
Bond (SLOVEN)
SLOVEN 4 03/22/18 (EUR 1bn). There are several different bonds outstanding in USD.
4
4
3
3
2
2
1
1
0
0
-1
06.2015
Yield (%)
Yield (%)
Slovenia govt bonds – Yields (%)
-1
08.2015
2 Yr
10.2015
12.2015
3 Yr
02.2016
04.2016
5 Yr
06.2016
10 Yr
08.2016
10.2016
20 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 86 of 109
Issuer Guide 2016 – Eurozone (EU19)
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
1
90
-1
80
-3
70
-5
60
50
-7
40
-9
30
-11
20
-13
10
0
-15
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Other revenue
Social contributions, receivable
Other expenditure
Capital transfers, payable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Source: Eurostat, NORD/LB Fixed Income Research
In Slovenia, the government plays a comparatively active role in economic affairs, which
recently became apparent from the extremely substantial expenditure to recapitalise the
domestic banking sector. We think that privatisations would not only make sense to
achieve short-term income but that the government could also find itself embroiled in
conflicts of interest if it becomes too involved in markets where it sets the conditions. The
positive development of the country’s fiscal balance sustained since 2013 augurs well for
Slovenia to be able to comply with both Maastricht criteria in future. In virtually all problem areas (employment, pensions, taxes), the European Commission has demanded
more activity and resolve. With regard to the changes to the tax system, it is clear that
the intention is to tax the more prosperous social strata more heavily. Slovenia can
above all focus on tourism, a solid import/export relationship with the EU and the strong
real commodity export rates since 2014. However, trade with Russia is rather limited on
account of the Ukraine crisis. Its access to the sea (Koper) gives the country the option
of gradually developing other foreign markets.
Strengths & opportunities
Weaknesses & risks
+
Debt situation within appropriate limits
–
Focus on the automotive industry
+
New debt limit fulfilled
–
Adverse effects arising from the Ukraine crisis
+
Good infrastructure
–
Banking sector weakened, not profitable
+
Strong export economy
–
High labour costs compared regionally
+
EU subsidies as investment aid
–
Small domestic market
+
Renewable energies as a growth market
–
Dependence on exports and the global economy
Source: NORD/LB Fixed Income Research
Comment – Bond market
Slovenian government bonds are a not very liquid investment at the interface between Aand BBB ratings. In our opinion, buy-and-hold investors are the primary target group
because of the limited liquidity on the secondary market. The reaction of Slovenian
spreads in connection with the problems in Cyprus showed investors how fragile the
capital markets’ confidence is in relation to the Balkan state. The debate centred on
whether Slovenia could become “Cyprus Mk II” is slowly dying down and is no longer
affecting bonds quite so significantly.
NORD/LB Fixed Income Research
Page 87 of 109
Issuer Guide 2016 – Eurozone (EU19)
Lithuania
Ever closer links with the West
Lithuania is divided into 10
NUTS 3 regions:
Lithuania was included in the eurozone on 1 January 2015, which consequently became
the EU19. By joining the eurozone, Lithuania once again fulfilled and documented the
political desire for closer links with the West, with Europe and its institutions (it has been
a member of the EU since 2004 and a member of NATO since 1999). When its economic circumstances are examined more closely (GDP: EUR 37.1bn; 0.4% share of EU19
GDP), Lithuania’s close links with the Russian economy are strikingly apparent. Despite
the huge decline in trade exchange compared with 2014, Russia still remains the country’s most important trading partner, even though the share of exports and imports has
fallen from 20.9% to 13.7% and from 21.7% to 17.0% respectively. Russia’s political
manoeuvrings in the wake of the Ukraine crisis are still viewed very critically by the Baltic states with their Russian minority populations. As a consequence, Lithuania wants to
lessen its near total dependency on gas and power imports from Russia, having already
established an alternative energy provision infrastructure. In addition to a liquid gas
terminal in 2014, power bridges to Sweden and Poland were also put into operation at
the end of 2015. Lithuania is one of five countries complying with the European stability
criteria (debt/GDP ratio of 42.7%, new debt amounted to 0.2% of GDP in 2015). The
economic centres are Kaunas, Vilnius and Klaipėda. Despite the thoroughly positive
economic data, Lithuania is confronted with a dwindling employment rate. In comparison
with other European countries, Lithuania’s low wages and salaries are forcing above all
the younger generations to emigrate to countries offering a higher rate of pay (UK, Sweden and Germany, for example).
[LT001] Alytaus apskritis
[LT002] Kauno apskritis
[LT003] Klaipėdos apskritis
[LT004] Marijampolės apskritis
[LT006] Šiaulių apskritis
[LT007] Tauragės apskritis
[LT008] Telšių apskritis
[LT009] Utenos apskritis
[LT00A] Vilniaus apskritis
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Industry (except construction)
3 Public admin, educ., human health, social
4 Construction
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
2,9
65.286
37,1
Value
33,2
24,5
13,5
6,5
5,6
16,6
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Food, beverages and tobacco
9,0%
17,2%
1 Russia
13,7%
Petroleum, petroleum products and related materials 4,0%
15,9%
2 Latvia
9,8%
Furniture and parts thereof; bedding, mattresses, mattress
0,9%
supports, cushions
6,0%
and3similar
Polandstuffed furnishings
9,7%
Crude materials
2,9%
5,6%
4 Germany
7,8%
Fertilizers (other than those of group 272)
0,2%
4,0%
5 Estonia
5,3%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
3,8%
8
6 Belarus
4,6%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 3,6%
parts thereof 7(including
United Kingdom
non-electrical counterparts, n.e.s.,
4,5%
of electrical household-type e
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
3,5%
n.e.s.
8 USA
4,4%
Road vehicles (including air-cushion vehicles)
11,7%
3,3%
9 Netherlands
4,0%
Manufactures of metals, n.e.s.
3,1%
3,1%
10 Sweden
4,0%
Value
0,51
-1,197
1,584
0,378
1,065
0,141
-1,298
0,324
-1,412
-0,642
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Petroleum, petroleum products and related materials 8,2%
16,5%
1 Russia
17,0%
Food, beverages and tobacco
8,8%
12,5%
2 Germany
11,5%
Road vehicles (including air-cushion vehicles)
8,9%
5,9%
3 Poland
10,4%
Crude materials
4,1%
4,7%
4 Latvia
7,6%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,0%
parts thereof 5(including
Netherlands
non-electrical counterparts, n.e.s.,
5,1%
of electrical household-type e
Medicinal and pharmaceutical products
5,3%
3,8%
6 Italy
4,6%
Machinery specialized for particular industries
1,8%
3,7%
7 Sweden
3,9%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
3,7%
n.e.s.
8 Belarus
3,5%
Manufactures of metals, n.e.s.
2,9%
3,4%
9 Belgium
3,0%
Telecommunications and sound-recording and reproducing
4,1%
apparatus3,1%
and equipment
10 Estonia
3,0%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015.
EUR bonds Lithuania (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
A-
Stable
Moody’s
A3
Stable
S&P
A-
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 88 of 109
Issuer Guide 2016 – Eurozone (EU19)
Rating agencies view
euro accession positively
Accession to the euro gave the Baltic country a significant boost. In particular, Standard
& Poor’s and Fitch have rated the country positively since 2014. Moody’s gave the country the “thumbs up” in May 2015 and now rates it A3, having rated it Baa1 since 2009.
Consequently, the country is rated investment grade by all three leading agencies. The
elimination of any exchange risk is viewed positively here, as is the ongoing improvement in budget finances. The situation in and around Russia poses a risk for the budget,
as Lithuania maintains good relationships but is now suffering from the EU restrictions.
EMTN programme started in
2014 and expanded
Lithuania started its EMTN programme in January 2014 and gradually expanded it last
year. Government bonds can therefore be traded for international investors. On the one
hand, as usual there is a whole series of primary dealers. However, on the other hand,
there is a small but functioning secondary market for these “Eurobonds”. Other bonds
are denominated in USD and CHF. Here, the Ministry of Finance does not specify either
totals or currencies in advance and makes flexible use of this instrument for funding
purposes according to the website. All circulating bonds are listed on the Luxembourg
stock exchange.
Term
2 to 11y
Lithuania
(LITHGB)
Security
LITHGB
Term
Over 10y
Lithuania
(LITHUN)
Security
LITHUN
Term
variable
Lithuania
(LITHTB)
Security
LITHTB
Day count
act/act
Coupon type
fixed
Cpn frequency
annual
Issuance
as required
Lithuania was not particularly active in 2015 or 2016: only six bonds have been issued
since acceding to the eurozone. They are all between three and seven years, with outstanding volumes currently in the range of between EUR 75.0m and EUR 225.0m. All
other 13 bonds were converted to EUR on 1 January 2015. The outstanding total volume of 19 bonds in this segment amounts to EUR 3.0bn.
Day count
act/act
Coupon type
Fixed/variable
Cpn frequency
annual
Issuance
as required
Up until accession to the eurozone, no long-dated bonds were issued under LITHUN.
The Lithuanians used this ticker to place a ten-year bond (EUR 750m) and a 20-year
bond (EUR 1.2bn) in October last year. In total, six bonds are denominated in euro and
add up to an overall volume of EUR 4.9bn. The bonds still outstanding have been in
circulation since 2007. Other currencies are USD (four bonds) and CHF (one).
Day count
act/act
Coupon type
zero
Cpn frequency
annual
Issuance
as required
With one outstanding bond, it would certainly be presumptuous to speak of a segment
here. In addition, LITHTB 0 09/30/15 fell due in the meantime. The only zero had an
outstanding volume of EUR 120m. It remains to be seen as to when, or whether at all,
this ticker springs back into life.
Lithuania govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06.2015
08.2015
LITHGB 10/31/2018
10.2015
12.2015
LITHGB 10/03/2020
02.2016
04.2016
LITHGB 2.1 11/06/24
-1
08.2016
06.2016
LITHGB 02/28/2023
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 89 of 109
Issuer Guide 2016 – Eurozone (EU19)
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
0
90
-1
80
-2
70
-3
60
-4
50
-5
40
-6
30
-7
20
-8
10
-9
0
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
-10
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
Both the European Commission and the monetary authorities certified that the Baltic
state was fit to join the euro in 2014. Olli Rehn, former European Commissioner for Economic and Monetary Affairs, praised the subsequent course adopted by the country to
deal with the crisis at this time, saying that Lithuania has controlled inflation, the budget
deficit and government debt. However, since prices and per capita income in Lithuania
were lower than those in the eurozone, inflation could be expected to trend upwards in
future. This situation has, as yet, not materialised. With price increases down 0.7% on
the previous year, Lithuania underwent something of a decline in prices in 2015, the year
of its accession to the eurozone. The ECB continued to stress that confidence in the
strength of the financial sector must be increased, which will be guaranteed most notably
through changes designed to make banking supervision more effective. The budget
deficit always remained below 3%. While government debt, at nearly 43% of GDP, is
certainly comparatively well below the permitted 60%, a negative trend is nonetheless
evident. We are therefore not alone in thinking that Lithuania must reduce the deficit
further and continue its policy of consolidation. We see risks arising from governmentowned companies and low rates of tax compliance. The pension system could also become a problem in the long term because of the ageing population. Another problem
comes in the shape of the increasing scarcity of skilled workers caused by the young
generations of the population emigrating. This issue can only be counteracted in the long
term by wage increases. In addition, Lithuania continues to be affected by the economic
and political insecurity afflicting Russia, its most important trading partner.
Strengths & opportunities
Weaknesses & risks
+
Compliance with the Maastricht criteria
–
Relationship with Russia
+
Highly developed fibre optic network
–
Declining numbers in gainful employment caused by
migration
+
Regionally differentiated economic structure
–
Dependence on commodities imports
+
EU development aid for infrastructure
–
Structural unemployment
+
Moderate corporate taxation
–
Small domestic market
+
Political stability
–
Poor health and pension system
+
Measures implemented to increase independence from Russia
–
Limited supply of technical staff because the entire
population is small
Source: NORD/LB Fixed Income Research
Comment – Bond market
The Lithuanian bond market is small but good. The newest eurozone member has redenominated its outstanding bonds in EUR and various bonds on the secondary market;
however, the volumes traded are low. Comparatively sound government finances do not
suggest that more bonds will be issued for funding purposes in future either.
NORD/LB Fixed Income Research
Page 90 of 109
Issuer Guide 2016 – Eurozone (EU19)
Latvia
Economy on course, in spite of Russia
Latvia is divided into six
NUTS 3 regions, to which 15
groups are allocated
With GDP of EUR 24.4bn (2015), Latvia, which has been independent since 1991, accounts for around 0.2% of the eurozone’s economic output. It has been a member of the
EU since 2004. On 1 January 2014, the country became the 18th nation to join the eurozone. Latvia comfortably meets the Maastricht criteria (new debt 1.3% and overall indebtedness 36.4% as a percentage of GDP in 2015). After the crisis years (2008-2010)
Latvia generated above-average real GDP growth (2.7% in 2015) and is almost back to
the pre-crisis level. The capital Riga is the economic centre and contributes around 50%
to Latvia's GDP. The remaining economic output is distributed relatively evenly over the
other regions. Due to the crisis in Ukraine, the recovery of foreign trade which had been
happening noticeably over the years has slowed down. In particular, exports to Latvia’s
neighbour Russia have decreased by more than 3% to 11.5%. Over 70% of Latvian
foreign trade is with European Union member states, and among them, its biggest trading partner is its Baltic neighbour Lithuania. Germany, in contrast, was the second most
important for Latvia in terms of imports and the fourth most important for exports in
2015. A domestic political issue which could potentially escalate into a foreign policy
crisis is inadequate integration of the Russian minority (approximately 25%), the majority
of whom are classified as “non-citizens”. For example, this minority are not entitled to
vote and therefore have no participation in the political process. In this context Russian
policy in Ukraine is viewed particularly critically, especially since Latvia is partially dependent on energy imports from Russia.
[LV00] Latvija:
[LV003] Kurzeme
[LV005] Latgale
[LV006] Rīga
[LV007] Pierīga
[LV008] Vidzeme
[LV009] Zemgale
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Industry (except construction)
3 Public admin, educ., human health, social
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
2,0
64.573
24,4
Value
29,1
18,7
13,4
9,9
7,0
22,0
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Food, beverages and tobacco
9,0%
17,6%
1 Lithuania
17,7%
Crude materials
2,9%
15,2%
2 Russia
11,5%
Telecommunications and sound-recording and reproducing
2,7%
apparatus7,5%
and equipment
3 Estonia
11,1%
Cork and wood manufactures (excluding furniture)
0,5%
5,0%
4 Germany
6,3%
Manufactures of metals, n.e.s.
3,1%
4,5%
5 Poland
5,6%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
4,3%
8
6 Sweden
5,2%
Petroleum, petroleum products and related materials 4,0%
4,2%
7 United Kingdom
5,0%
Road vehicles (including air-cushion vehicles)
11,7%
3,3%
8 Denmark
4,0%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 3,2%
parts thereof 9(including
Netherlands
non-electrical counterparts, n.e.s.,
2,5%
of electrical household-type e
Iron and steel
2,8%
3,0%
10 Norway
2,2%
Value
-0,19
-2,097
1,662
0,113
1,035
0,514
-0,193
0,35
-0,198
-0,166
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Food, beverages and tobacco
8,8%
14,4%
1 Lithuania
16,9%
Petroleum, petroleum products and related materials 8,2%
7,9%
2 Germany
11,3%
Telecommunications and sound-recording and reproducing
4,1%
apparatus6,3%
and equipment
3 Poland
10,5%
Other transport equipment; confidential traffic of section 3,5%
7
5,4%
4 Russia
8,2%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
5,2%
8
5 Estonia
7,7%
Road vehicles (including air-cushion vehicles)
8,9%
5,0%
6 Finland
5,2%
Crude materials
4,1%
5,0%
7 Netherlands
4,0%
Manufactures of metals, n.e.s.
2,9%
4,7%
8 Italy
3,8%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 4,0%
parts thereof 9(including
Sweden non-electrical counterparts, n.e.s.,
3,5%
of electrical household-type e
Chemical materials and products, n.e.s.
1,9%
3,9%
10 China
3,2%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
EUR bonds Latvia (EURbn) – Maturity profile
Ratings overview
LT
Outlook
Fitch
A-
Stable
Moody’s
A3
Stable
S&P
A-
Stable
As at: 31 October 2016
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 91 of 109
Issuer Guide 2016 – Eurozone (EU19)
Latvian government
bonds are aimed at
foreign investors
The Latvian Treasury issues two standard types of securities. Government
bonds with medium or longer-term maturities are called iekšējā aizņēmuma
obligācijas. In the short maturity segment, iekšējā aizņēmuma parādzīmes (discounted treasury bills) are issued with a term of six or twelve months. Further
information on the state of the public finances can be found on the Finance
Ministry website or the government website . According to the Eurostat database, around three-quarters of Latvian bonds are held by foreigners.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
6, 12m
TB; LATVTB
act/360
zero
discounted
weekly
Iekšējā aizņēmuma
In mid-August 2015, there were still three discounted treasury notes representing a total
parādzīmes (treasury bills)
volume of around EUR 110m. While in the past, issues with a volume of EUR 15m were
seen as standard, this is no longer the case. As at the reference date at the end of October 2016, no bonds were in circulation; in the previous year they totalled EUR 15m to
75m.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
3,5,10,11y
GRDS; LATVGB
act/365
fixed
annual
as required
Iekšējā aizņēmuma
Latvian government bonds issued in the European single currency are traded under the
label LATVGB. The largest bond of this type is LATVGB 0 1/4 01/23/18, which, with a
obligācjas (government
bonds)
volume of EUR 220.9m, represents 21.4% of the market. Currently, there are eleven
bonds of this type, totalling EUR 1.0m.
Term
Security
7,10y
LATVIA
Iekšējā aizņēmuma
obligācjas (government
bonds)
Day count
act/act
Coupon type
fixed
Cpn frequency
annual
Issuance
as required
This ticker includes seven bonds denominated in EUR and three in USD. There were
two additions to the existing EUR bonds (volume: EUR 2.4bn) in the second half of 2015
as well as two additional bonds in 2016, each amounting to EUR 650m. The three government bonds denominated in USD remain unchanged and are LATVIA 5 1/4 02/22/17
(USD 1.0bn), LATVIA 2 3/4 01/12/20 (USD 1.25bn) and LATVIA 5 1/4 06/16/21 (USD
500m). Buybacks for some of these have already started.
Latvia govt bonds – Yields (%)
2
1
1
0
0
Yield (%)
Yield (%)
2
-1
06.2015
-1
08.2015
10.2015
12.2015
LATVIA 5 1/2 03/05/18
02.2016
04.2016
LATVIA 2 5/8 01/21/21
06.2016
08.2016
10.2016
LATVIA 2 7/8 04/30/24
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 92 of 109
Issuer Guide 2016 – Eurozone (EU19)
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
0
90
-1
80
-2
70
-3
60
-4
50
-5
40
-6
30
-7
20
-8
10
-9
0
-10
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
2015
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
Economic development should continue to develop significantly above the EU average.
Russia’s current efforts to gain logistical independence from its Baltic neighbour pose a
potential threat to the significance of Latvian ports. It will be even more important for
Latvia to expand sectors with a higher level of value added. We believe that there are
opportunities in electrical engineering and electronics, as well as information communication technology. EU funding has already been put to use for the expansion of the
national fibre optic network among other things and will continue to be used for this
purpose. With this aid, Latvia should continue to make considerable technological improvements and improve its international competitiveness. We view Latvia’s traditional
involvement in the Baltic region as a positive, allowing the country to participate in the
economic development of neighbouring Scandinavian and Eastern European countries.
Strengths & opportunities
Weaknesses & risks
+
Compliance with the Maastricht criteria
–
Relationship with/dependence on Russia
+
Low labour costs
–
Declining numbers in gainful employment caused by
migration
+
Logistical importance for CIS
–
Dependence on commodity imports from Russia
+
EU development aid for infrastructure
–
Structural unemployment
+
High level of direct foreign investment
–
Small domestic market
Source: NORD/LB Fixed Income Research
Comment – Bond market
Latvia has proven that it is a trustworthy debtor and does not shy away from even severe
cuts to bring its public finances into order. In this respect, the country's bonds are, in
principle, to be recommended, provided of course that their low level of liquidity does not
pose a problem for an investor. The euro-denominated portfolio was, at one time, rather
modest, but it has gradually been increased over the years – despite sound public finances. With a current euro-denominated issuance volume of EUR 5.8bn spread over 18
government bonds, poor liquidity continues to characterise bonds from the Baltic state,
meaning that they are therefore most suitable for buy-and-hold investors to mix into their
portfolios.
NORD/LB Fixed Income Research
Page 93 of 109
Issuer Guide 2016 – Eurozone (EU19)
Estonia
Exemplary budget situation and relationship with Russia
Estonia is divided into
five NUTS 3 regions which
encompass 15 districts
At EUR 20.5bn, Estonia accounts for around 0.2% of the eurozone’s GDP (2015). It
joined the EU in 2004 and seven years later (2011) became the 17th country to introduce the euro. A Baltic state, Estonia lies directly opposite the south coast of Finland.
The two capitals are only separated by some 80 km and the languages of the two countries are also related. Estonia's budget situation is particularly impressive and the country easily complies with the Maastricht criteria (general government debt 9.7% of GDP;
budget surplus 0.4% of GDP in 2015). Apart from the years of the financial crisis (20082009), economic growth has been stable at a high level. In 2015, Estonia experienced
growth of 1.1%. Financial services, transport/logistics, telecommunications, tourism,
trade as well as the real estate and construction industries are some of the most important pillars of the economy. The capital city, Tallinn, in the Harju region, is the economic centre and contributes around 60% of Estonia's GDP. The Tartu region comes in
as the second strongest region economically, representing just 10% of national GDP.
The country’s main trading partners are the neighbouring countries of Sweden, Finland,
Latvia and Lithuania. However, Germany is also an important partner, accounting for
11.1% of imports. Potential problems lie in the domestic policy difficulties with its large,
and only partly integrated, Russian minority (approximately 25% of the total population),
which could lead to foreign policy dislocations with its neighbour, Russia. Russia's conduct in the Ukraine as well as its import ban on EU foodstuffs has particularly prompted
Estonia's politicians to sit up and take notice in this regard.
[EE00] Eesti:
[EE001] Põhja-Eesti
[EE004] Lääne-Eesti
[EE006] Kesk-Eesti
[EE007] Kirde-Eesti
[EE008] Lõuna-Eesti
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Industry (except construction)
3 Public admin, educ., human health, social
4 Real estate activities
5 Professional, scientific, technical activities
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
1,3
45.227
20,5
Value
23,2
21,5
14,7
11,0
8,0
21,7
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Telecommunications and sound-recording and reproducing
2,7%
apparatus11,6%
and equipment
1 Sweden
19,0%
Food, beverages and tobacco
9,0%
9,1%
2 Finland
16,1%
Crude materials
2,9%
8,8%
3 Latvia
10,4%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 8,2%
parts thereof 4(including
Russia non-electrical counterparts, n.e.s.,
6,7%
of electrical household-type e
Petroleum, petroleum products and related materials 4,0%
6,7%
5 Lithuania
5,9%
Manufactures of metals, n.e.s.
3,1%
5,2%
6 Germany
5,3%
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
4,5%
8
7 Norway
4,2%
Road vehicles (including air-cushion vehicles)
11,7%
4,5%
8 Netherlands
3,2%
Furniture and parts thereof; bedding, mattresses, mattress
0,9%
supports, cushions
4,1%
and9similar
USA stuffed furnishings
3,2%
Cork and wood manufactures (excluding furniture)
0,5%
3,9%
10 Denmark
2,9%
Value
-0,20
-0,843
1,183
0,331
0,446
0,406
-0,437
0,412
-0,5
-0,41
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Food, beverages and tobacco
8,8%
9,9%
1 Finland
14,5%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 9,9%
parts thereof 2(including
Germanynon-electrical counterparts, n.e.s.,
11,1%
of electrical household-type e
Petroleum, petroleum products and related materials 8,2%
7,8%
3 Lithuania
9,2%
Telecommunications and sound-recording and reproducing
4,1%
apparatus7,6%
and equipment
4 Sweden
8,5%
Road vehicles (including air-cushion vehicles)
8,9%
7,5%
5 Latvia
8,4%
Manufactures of metals, n.e.s.
2,9%
4,8%
6 Poland
7,4%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
4,3%
8
7 Russia
6,2%
Crude materials
4,1%
4,0%
8 Netherlands
5,5%
Other transport equipment; confidential traffic of section 3,5%
7
3,8%
9 China
4,8%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
3,3%
n.e.s. 10 United Kingdom
2,7%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015
EUR bonds Tallinn (EURbn) – Maturity profile
Ratings overview
Outlook
Fitch
A+
Stable
Moody’s
A1
Stable
S&P
AA-
Stable
As at: 31 October 2016
40
35
Amount Outstanding (EURm)
LT
30
25
20
15
10
5
0
TALLIN
2016
0,0
2017
0,0
2018
0,0
2019
0,0
2020
0,0
2021
0,0
2022
0,0
2023
0,0
2024
0,0
2025
0,0
2026
0,0
>2026
0,0
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 94 of 109
Issuer Guide 2016 – Eurozone (EU19)
Estonia has no need
to issue bonds
Term
10y, 20y
Estonia's sovereign debt totals EUR 2.1bn (9.7% of GDP). As the country does not issue
government bonds, its central government debt is exclusively made up of loan commitments. Its repayment obligations to the EIB amount to EUR 523.9m (various due dates
up to 2025), some of which relate to loans to finance transport routes in Estonia. EUR
1.6m fell due for repayment to the World Bank on 15 March 2015. Further information on
the country's sovereign debt can be found on the website of the Ministry of Finance.
Security
TALLIN
Capital bonds instead of
government bonds
Day count
act/360
Coupon type
FRN (EUR006M)
Cpn frequency
half-yearly
Issuance
as required
So far, the Baltic nation has not had to raise any financing via the capital market. Consequently, Estonia only participates in the European bond market with bonds issued by
its capital Tallinn, which has launched two euro-denominated bonds. TALLIN 0 12/30/15
matures at the end of 2015 after a ten-year term (volume: EUR 6.4m). In nominal terms,
the biggest bond is currently TALLIN 0 11/29/27 (FRN), which was launched in 2007 as
a 20-year bond with a volume of EUR 25.6m, of which only EUR 15.1m remains. Another 20-year bond, TALLIN 3.57 12/20/33, was issued at the end of 2013 as a fixed bond.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
4
90
3
80
2
70
60
1
50
0
40
30
-1
20
-2
10
0
-3
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 95 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
Estonia's public finances are in exemplary order. The call frequently made of the Member States by the EU Commission to shift the tax burden from labour to consumption has
been successfully implemented by Estonia for years. Although the emigration of skilled
workers is undeniable, in our opinion, the positive effects of the country's proximity to
Scandinavia, especially its appeal as a destination for foreign direct investment, predominate. One negative comment is that Estonia's marginal geographic position makes its
regional inclusion in the eurozone very difficult, and this is particularly noticeable in the
country's vital energy supply. Under these conditions, it is likely that reducing its dependence on Russian imports will be a slow process. The Estonian banking sector appears to
be healthy and sufficiently capitalised.
Strengths & opportunities
Weaknesses & risks
+
Healthy public finances
–
Industrial sectors with low added value
+
Moderate taxation
–
Adverse demographic development
+
Well-organised public administration
–
Political-economic uncertainties with Russia
+
Expansion/diversification of energy supply
–
Dominance of capital region
+
Geographic position as transit country for CIS
goods
+
Communications infrastructure (most internet
connections per capita worldwide)
Source: NORD/LB Fixed Income Research
Comment – Bond market
Currently Estonian government bonds do not exist because the Baltic nation has always
run its finances so as to comply with the Maastricht criteria. We see Estonia as the counterpoint to Greece, which sank further and further into debt having been granted unjustifiably favourable terms and conditions. We are convinced that investors would welcome
Estonian bond issues.
NORD/LB Fixed Income Research
Page 96 of 109
Issuer Guide 2016 – Eurozone (EU19)
Cyprus
Caught in the Greek maelstrom?
Cyprus is not divided into
different NUTS regions
At EUR 17.4bn, Cyprus contributes around 0.2% to the GDP of the EU19 (2015). The
country encountered very serious difficulties as a result of the financial crisis, which were
exacerbated by its dependence on the financial sector. As a result, Cyprus had to apply
for emergency loans, which were only granted on the basis that the bondholders of
Cypriot banks participated. After three years, and a call of EUR 6.3bn from the rescue
package totalling EUR 9bn, the island country is now the fourth eurozone country following Ireland, Spain and Portugal to get by without additional financial aid. Cyprus must
repay the loans it received from the ESM between 2025 and 2031. Economic growth
estimates suggest that the Cypriot economy grew again as at the end of 2015 for the
first time in years (+1.6% in 2015 compared with 2014). However, the economy of Cyprus is inexorably linked to that of Greece. Greece was again Cyprus’ most important
trading partner in terms of both imports and exports in 2015. Consequently, the uncertainties in Greece are likely to continue to affect the Cypriot economy over the long term.
Apart from these connections, the Cypriot economy is hoping for an upturn in the medium term (starting in approx. 2018) from the exploitation of significant oil and natural gas
deposits close to the coast. A gas terminal set to be one of the world’s largest and requiring investment of EUR 6-7bn is to be constructed for this purpose. The deposits
could satisfy 10% of demand from western Europe in addition to Cyprus’s own requirements, and they also hold the promise of becoming a potentially large source of income.
Country Profile
1 Population (Mln. inhabitants)
2 Area (sq. km)
3 Gross Domestic Product (EURbn)
Gross value added by sectors (%)
1 Trade, transport, accomodation, food serv.
2 Public admin, educ., human health, social
3 Real estate activities
4 Financial and insurance activities
5 Industry (except construction)
6 Others
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
0,8
9.251
17,4
Value
24,3
22,1
11,6
10,2
8,7
23,0
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Petroleum, petroleum products and related materials 4,0%
24,0%
1 Greece
13,1%
Food, beverages and tobacco
9,0%
17,3%
2 Ireland
11,4%
Medicinal and pharmaceutical products
6,6%
15,0%
3 United Kingdom
8,5%
Other transport equipment; confidential traffic of section 4,3%
7
9,9%
4 Israel
7,0%
Telecommunications and sound-recording and reproducing
2,7%
apparatus5,7%
and equipment
5 Saudi Arabia
4,5%
Non-metallic mineral manufactures, n.e.s.
1,6%
3,9%
6 Egypt
4,1%
Crude materials
2,9%
3,6%
7 Lebanon
3,5%
Organic chemicals
3,0%
3,0%
8 China
2,7%
Road vehicles (including air-cushion vehicles)
11,7%
2,7%
9 Slovakia
2,7%
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical 1,8%
parts thereof
10(including
Italy
non-electrical counterparts, n.e.s.,
2,7%
of electrical household-type
Value
-0,31
-2,942
3,252
1,262
0,384
1,607
0,506
0,169
11,734
-11,374
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Petroleum, petroleum products and related materials 8,2%
21,8%
1 Greece
25,9%
Food, beverages and tobacco
8,8%
19,2%
2 United Kingdom
9,0%
Road vehicles (including air-cushion vehicles)
8,9%
6,8%
3 Italy
8,1%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
5,4%
8
4 Germany
7,5%
Medicinal and pharmaceutical products
5,3%
4,5%
5 Israel
5,5%
Articles of apparel and clothing accessories
3,3%
4,5%
6 China
4,8%
Telecommunications and sound-recording and reproducing
4,1%
apparatus2,9%
and equipment
7 Netherlands
4,1%
Essential oils, resinoids and perfume materials; toilet, polishing
1,0% and cleaning
2,9% preparations
8 Spain
3,8%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 2,9%
parts thereof 9(including
France non-electrical counterparts, n.e.s.,
3,8%
of electrical household-type
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
2,4%
n.e.s. 10 Belgium
2,9%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all additional data as at year-end 2015
EUR bonds Cyprus (EURbn) – Maturity profile
Ratings overview
Outlook
Fitch
BB-
Positive
Moody’s
B1
Stable
S&P
BB
Positive
As at: 31 October 2016
14
12
Amount Outstanding (EURbn)
LT
10
8
6
4
2
0
CYPTB
CYPGB
CYPRUS
Loan
2016
0,2
2017
0,2
0,3
2018
2019
2020
2021
2022
2023
0,1
0,7
0,6
0,2
0,6
0,2
0,1
1,0
0,2
1,0
2,5
2024
2025
2026
>2026
0,0
11,5
0,1
1,0
0,0
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 97 of 109
Issuer Guide 2016 – Eurozone (EU19)
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
30, 60d; 13w
TB; CYPTB
act/act
zero
discounted
weekly
Cyprus Treasury Bills
As a rule, Cyprus Treasury Bills run for 13 weeks (but a maximum of 52 weeks) and are
(CYPTB)
sold to investors by auction every week. Cyprus Treasury Bills are listed on the local
stock exchange (Cyprus Stock Exchange) on which they are also traded.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
12m
GRDS; CYPGB
act/365
zero
discounted
01.7.013
2,5,10,15y
GRDS; CYPGB
act/365
fixed
annual
as required
Govt Registered
A total of 23 GRDS represent a volume of EUR 1.8bn, of which the majority of the 24
Development Stocks
securities (21) are worth less than EUR 100m. Up to 2013, Cyprus mainly issued bonds
(Cyprus Govt Bonds)
with four different maturities (2, 5, 10 and 15 years). Since then, the 6, 7, 8 and 9 year
maturity segments have also been served. Three-year paper has not been floated since
2007. With a volume of EUR 667.7m, CYPGB 4 ½ 07/01/19 is the largest fixed interest
bond, followed by CYPGB 3 ¼ 01/18/23, worth EUR 221.9m. Consequently, these two
bonds account for more than 50% of total outstanding volume.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
2, 5, 10y
CYPRUS
act/act
fixed
annual
irregular
Euro MTN Cyprus Govt
At present, there are six euro-denominated securities with maturities from 2019 to 2025
International Bond (CYPRUS) as Cyprus Govt. International Bonds (EUR 4.2bn in total). Three CYPRUS bonds have
an outstanding amount of EUR 1.0bn and are therefore the largest bonds outstanding in
this category currently. A seven-year bond worth EUR 1bn (CYPRUS 3 7/8 05/06/22)
signalled the start in April 2015, following which a further two bonds of this size have
been placed. On account of a 2015 bond falling due, there has recently been a significant funding requirement at the currently very low interest rates.
5
5
4
4
3
3
2
2
1
06.2015
Yield (%)
Yield (%)
Cyprus govt bonds – Yields (%)
1
08.2015
10.2015
12.2015
4 Yr
02.2016
04.2016
6 Yr
06.2016
08.2016
10.2016
10 Yr
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 98 of 109
Issuer Guide 2016 – Eurozone (EU19)
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
120
4
2
100
0
80
-2
60
-4
40
-6
20
-8
0
-10
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
Comment – Public finances
Other revenue
Social contributions, receivable
Other expenditure
Capital transfers, payable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
There is absolutely no doubt that Cyprus’ previous business model has failed. Cypriot
banks’ huge exposure to Greek government bonds proved disastrous. The haircut imposed on 9 March 2012 ultimately led to the utilisation of ESM aid. However, Cyprus was
in a position to let this aid, originally offered in 2013, expire at the start of 2016. The fact
that the guaranteed aid was not used in full is a reason for optimism. Cypriot banks have
also increasingly been able to regain trust despite the many non-performing loans. The
public sector in Cyprus has been streamlined in the wake of social and economic reforms, with reforms initiated in terms of income also. However, the reform process has
not yet been completed, and some measures demanded by the Troika are no longer
being implemented. With the help of income from natural gas deposits, the Mediterranean island has an opportunity to develop a viable structure.
Strengths & opportunities
Weaknesses & risks
+
Confirmed gas deposits
–
Economic links with Greece
+
Falling labour costs
–
(Still) high energy prices because of imports
+
Strong, developable tourism sector
–
Stricken banking sector
+
Good preconditions for renewable energies
–
Unresolved territorial problem
+
Well-organised public administration
–
Future natural gas exploration will exacerbate
relations with Turkey
+
Financial crisis overcome for the most part
Source: NORD/LB Fixed Income Research
Comment – Bond market
Cyprus government bonds have had extremely poor ratings for a long time. Cyprus was
unable to raise funding on the capital market for around one and a half years. The financial aid provided by the monetary union and the accompanying structural reforms restored and are still restoring trust in the Cypriot economy. Government debt, which had
risen substantially, still remains, although the high deficits of over 5% are now a thing of
the past. It needs to be noted that Cyprus, which is very much smaller than Greece, is
making great efforts to present a positive picture not just in public but to investors in
particular. The return to the primary market has therefore been more than successful!
NORD/LB Fixed Income Research
Page 99 of 109
Issuer Guide 2016 – Eurozone (EU19)
Malta
One thousandth of the eurozone
Malta is divided
into two NUTS 3 regions
With a GDP of EUR 8.8bn (2015), Malta, which has been a member of the EU since
2004, only contributes approximately 0.1% of the eurozone’s economic output. Malta is
situated south of Sicily and consists of seven islands, of which three are inhabited. Malta
was a British naval base until 1979. The country is still a member of the Commonwealth.
Malta complies with the Maastricht criteria in part at least (1.5% budget deficit against
GDP in 2015) and in terms of total debt (63.9% of GDP in 2015) is well below the eurozone average. Services play a dominant role for the Maltese economy (including trade,
banking and tourism). More than 20% of jobs in Malta are dependent on tourism alone.
The Maltese economy is concentrated on the capital city of Valetta, where, among other
things, the largest airport is located (Luqa). Foreign trade relationships are centred on
the harbour, where even the largest types of shipping can dock. The energy sector is
dependent on crude oil imports from Italy and the UK. Electricity is generated on a selfsufficient basis; a connection to the Italian electricity system was inaugurated in April
2015, which broke Malta’s isolation as far as energy is concerned, meaning that direct
dependence on oil can be remedied in favour of an energy mix. Given that Malta previously had to significantly subsidise the single energy producer Enemalta, most notably
to compensate it for fluctuations in the oil price, this situation may have relevant repercussions for Maltese government finances.
[MT00] Malta
[MT001] Malta
[MT002] Gozo and Comino
Country Profile
Value
1 Population (Mln. inhabitants)
0,4
2 Area (sq. km)
315
3 Gross Domestic Product (EURbn)
8,8
Gross value added by sectors (%)
Value
1 Trade, transport, accomodation, food serv.
21,0
2 Public admin, educ., human health, social
19,4
3 Industry (except construction)
12,8
4 Professional, scientific, technical activities
10,8
5 Arts, entertainment and recreation; other service activities
9,9
6 Others
26,0
Balance of Payments, selected positions
A Current Account (EURbn)
A1 Goods (EURbn)
A2 Services (EURbn)
Travel (EURbn)
Transportation (EURbn)
Others (EURbn)
B Financial Account (EURbn)
Direct Investment (EURbn)
Portfolio Investment (EURbn)
Others (EURbn)
Value
0,11
-0,965
1,449
0,724
-0,017
0,699
0,005
-1,584
-2,297
3,911
1
2
3
4
5
6
7
8
9
10
Exports (Products)
EU19 mean
Weight
Exports (Countries)
Weight
Electrical machinery, apparatus and appliances, n.e.s., and
5,5%
electrical29,5%
parts thereof 1(including
Germanynon-electrical counterparts, n.e.s.,
14,4%
of electrical household-type e
Miscellaneous manufactured articles, n.e.s.; confidential3,9%
traffic of section
13,3%
8
2 France
10,9%
Petroleum, petroleum products and related materials 4,0%
13,3%
3 Hong Kong
8,0%
Medicinal and pharmaceutical products
6,6%
10,4%
4 Singapore
7,9%
Food, beverages and tobacco
9,0%
10,3%
5 United Kingdom
6,9%
Other transport equipment; confidential traffic of section 4,3%
7
3,9%
6 USA
6,3%
Professional, scientific and controlling instruments and apparatus,
2,4%
n.e.s.
2,9%
7 Italy
6,0%
Rubber manufactures, n.e.s.
0,9%
2,3%
8 Japan
5,1%
Road vehicles (including air-cushion vehicles)
11,7%
2,1%
9 Libya
4,2%
General industrial machinery and equipment, n.e.s., and5,5%
machine parts,
1,5%
n.e.s. 10 Saudi Arabia
1,8%
1
2
3
4
5
6
7
8
9
10
Imports (Products)
EU19 mean
Weight
Imports (Countries)
Weight
Other transport equipment; confidential traffic of section 3,5%
7
23,3%
1 Italy
23,3%
Petroleum, petroleum products and related materials 8,2%
21,0%
2 Netherlands
8,4%
Food, beverages and tobacco
8,8%
10,7%
3 United Kingdom
7,6%
Electrical machinery, apparatus and appliances, n.e.s., and
5,6%
electrical 8,9%
parts thereof 4(including
Germanynon-electrical counterparts, n.e.s.,
6,7%
of electrical household-type e
Road vehicles (including air-cushion vehicles)
8,9%
3,7%
5 Canada
6,1%
Miscellaneous manufactured articles, n.e.s.; confidential4,1%
traffic of section
3,1%
8
6 China
4,1%
General industrial machinery and equipment, n.e.s., and3,6%
machine parts,
2,8%
n.e.s.
7 France
4,1%
Medicinal and pharmaceutical products
5,3%
2,6%
8 Spain
4,0%
Organic chemicals
3,2%
1,8%
9 USA
3,5%
Paper, paperboard and articles of paper pulp, of paper or1,2%
of paperboard
1,6%
10 Belgium
2,5%
Source: Eurostat, NORD/LB Fixed Income Research; payment balance data as at year-end 2013, all other data as at year-end 2015.
EUR bonds Malta (EURbn) – Maturity profile
Ratings overview
Outlook
Fitch
A
Positive
Moody’s
A3
Stable
S&P
A-
Stable
As at: 31 Ocotber 2016
3
Amount Outstanding (EURbn
LT
2
1
0
MALTTB
MALTA
2016
204
190
2017
57
372
2018
2019
2020
2021
2022
2023
2024
2025
2026
>2026
391
436
462
462
376
81
25
2
1
2.628
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 100 of 109
Issuer Guide 2016 – Eurozone (EU19)
Almost all debt securities
(total volume:
EUR 5.1bn) are held by Maltese citizens
The Debt Management Office (DMO) acts as a funding agency and has existed as a
section within the Maltese Ministry of Finance since 2006. Currently, Malta has placed
a volume of around EUR 5.7bn. Malta Treasury Bills (issuance calendar T-bills) are
offered on the money market. Maturities of one year and longer are covered by Malta
Government Stocks (MGS), which are announced at the beginning of the year in the
issuance calendar (MGS). For 2016, the issuance of a maximum of EUR 600m is
planned. This will be matched by redemptions of EUR 417.8m.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
1,3,6,9,12m
MTB; MALTTB
act/360
Zero
discounted
weekly, Tuesday
Malta Treasury Bills
There are 41 Malta Treasury Bills (MALTTB) with a total volume of EUR 261m currently
(MALTTB)
placed on the money market. Treasury Bills are auctioned once a week (on Tuesdays)
as a rule. On 1 October 2015, the interval until settlement was reduced from three to two
days. Standard maturities are 28, 91, 273 and 364 days with the focus being concentrated on quarterly maturities this year.
Term
Security
Day count
Coupon type
Cpn frequency
Issuance
4y to 20y
MGS; MALTA
act/act
fixed
half-yearly
as advertised
3y, 5y
MGS; MALTA
act/360
FRN (EUR006M)
half-yearly
as advertised
Malta Govt. Stocks
Malta Govt. Stocks (MGS; MALTA) have evolved into the island country’s main funding
(MALTA)
instrument. Currently, 57 (!) bonds with a total volume of only EUR 5.4bn have been
issued. MGS are offered on either a fixed interest basis (50 securities; EUR 5.2bn) or as
FRNs (7 securities; EUR 248.3m) and cover maturities of over a year. The FRNs’ performance is linked to 6M-Euribor. With a volume of EUR 459m, MALTA 5 08/08/21 is
nominally the largest bond. At present, MALTA 2.4 07/25/41 is the bond with the longest
residual maturity. Interest on MGS is paid every six months. Maltese government bonds
are listed on the national stock exchange (MLEX; Malta Exchange) and are also traded
over the exchange as a rule.
Gross debt vs. budget balance (% of GDP)
Total revenue vs. total expenditure (EURbn)
100
0
90
80
-1
70
60
-2
50
40
-3
30
20
-4
10
0
-5
2005
2006
2007
2008
2009
2010
2011
2012
2013
Government consolidated gross debt (% of GDP, lhs)
Net lending/borrowing (% of GDP, rhs)
Source: Eurostat, NORD/LB Fixed Income Research
2014
2015
Other revenue
Social contributions, receivable
Taxes on production and imports, receivable
Taxes on income, wealth, etc. receivable
Other expenditure
Capital transfers, payable
Interest, payable
Social benefits and social transfers
Compensation of employees, payable
Source: Eurostat, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 101 of 109
Issuer Guide 2016 – Eurozone (EU19)
Comment – Public finances
While Malta is part of the single currency zone, it is scarcely comparable with most of the
other member countries solely because of its geographic location and its meagre economic output. In our opinion, the largest problem areas are the pension system for which
plans are only being drawn up at a snail’s pace and the substantial costs of supporting
two companies of strategic significance for the country (Enemalta, Air Malta). The energy
link with Sicily could provide perceptible relief in future. The health of the very large domestic banking sector, which absorbs government money and capital market securities
to a far greater than average extent in the eurozone, is of essential significance for government finances. Risks here, in particular, must be identified at an early stage.
Strengths & opportunities
Weaknesses & risks
+
Strong, sustainable tourism sector
–
Export dependency in the energy sector
+
Debt situation within appropriate limits
–
Extreme drought leads to dependence on water
exports
+
Political stability
–
Share of renewable energies not remarkable
+
Renewable energies as a growth market
–
Small domestic market
+
New opportunities in energy policy through
connection to Italian electricity grid
Source: NORD/LB Fixed Income Research
Comment – Bond market
The Maltese market had not previously needed to draw foreign investors’ attention. Volumes traded on the Maltese market are, as a rule, small and are therefore of little interest to foreign institutional investors. In any case, the fact that it is mainly Maltese investors who buy the securities is not down to the rating, which is on the interface between A
and BBB+.
NORD/LB Fixed Income Research
Page 102 of 109
Issuer Guide 2016 – Eurozone (EU19)
Appendix
Rating Overview
Last updated: 31.10.2016
Moody’s
Fitch
Issuer
Germany
France
Italy
Spain
Netherlands
Belgium
Austria
Finland
Greece
Portugal
Ireland
Slovakia
Luxembourg
Slovenia
Lithuania
Latvia
Estonia
Cyprus
Malta
S&P
Rating
Date
Outlook
Date
Rating
Date
Outlook
Date
Rating
Date
Outlook
Date
AAA
AA
BBB+
BBB+
AAA
AA
AA+
AA+
CCC
BB+
A
A+
AAA
AAAA+
BBA
10.08.94
12.12.14
08.03.13
25.04.14
26.10.95
27.01.12
13.02.15
11.03.16
18.08.15
24.11.11
05.02.16
21.09.04
26.10.95
23.09.16
05.04.13
20.06.14
05.07.11
21.10.16
20.09.13
stab
stab
neg
stab
stab
neg
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
pos
pos
06.11.07
12.12.14
21.10.16
25.04.14
11.07.14
14.11.14
13.02.15
11.03.16
04.03.16
05.02.16
08.07.08
02.05.08
23.09.16
25.06.14
20.06.14
05.07.11
21.10.16
19.08.16
Aaa
Aa2
Baa2
Baa2
Aaa
Aa3
Aa1
Aa1
Caa3
Ba1
A3
A2
Aaa
Baa3
A3
A3
A1
B1
A3
05.07.00
18.09.15
13.07.12
21.02.14
01.01.86
16.12.11
24.06.16
03.06.16
25.09.15
25.07.14
14.05.16
13.02.02
20.09.89
23.01.15
08.05.15
13.02.15
24.07.15
13.11.15
13.02.12
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
pos
stab
stab
pos
stab
stab
stab
pos
stab
28.02.14
18.09.15
14.02.14
19.02.16
07.03.14
16.12.11
24.06.16
03.06.16
25.09.15
25.07.14
14.05.16
04.10.13
28.02.14
16.09.16
08.05.15
13.02.15
31.03.10
11.11.16
04.10.13
AAAu
AAu
BBB-u
BBB+
AAAu
AAu
AA+
AA+
BBB+u
A+
A+
AAA
A
AAAABB
A-
13.01.12
08.11.13
05.12.14
02.10.15
20.11.15
13.01.12
13.01.12
10.10.14
22.01.16
18.09.15
05.06.15
31.07.15
13.01.12
17.06.16
11.04.14
30.05.14
13.01.12
16.09.16
14.10.16
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
stab
pos
stab
13.01.12
21.10.16
05.12.14
02.10.15
20.11.15
28.02.14
29.01.13
16.09.16
22.01.16
18.09.15
05.06.15
31.07.15
14.01.13
17.06.16
11.04.14
30.05.14
19.10.12
16.09.16
14.10.16
Source: Bloomberg, NORD/LB Fixed Income Research
Thanks to
Ms Mareike Hormann
and Mr Timo Meier
We would like to thank Ms Mareike Hormann and Mr Timo Meier for their work on
this Issuer Guide. Their commitment was instrumental in producing an in-depth
analysis and highly differentiated description of Eurozone sovereign markets for
each of the countries.
NORD/LB Fixed Income Research
Page 103 of 109
Issuer Guide 2016 – Eurozone (EU19)
Appendix
Contacts
Fixed Income Research
Michael Schulz
Head
+49 511 361-5309
[email protected]
Kai Ebeling
Covered Bonds
+49 511 361-9713
[email protected]
Mario Gruppe
Public Issuers
+49 511 361-9787
[email protected]
Michaela Hessmert
Banks
+49 511 361-6915
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Melanie Kiene
Banks
+49 511 361-4108
[email protected]
Jörg Kuypers
Corporates / Retail Products
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[email protected]
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Covered Bonds
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Corporates / Retail Products
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Public Issuers
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Corporates / Retail Products
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Corporates / Retail Products
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[email protected]
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Sales Savings Banks / Regional Banks (+49 511 9818-9400)
Christian Schneider (Head)
[email protected]
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[email protected]
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[email protected]
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René Rindert (Head)
[email protected]
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[email protected]
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[email protected]
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+49 511 9818-4003
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+49 511 9818-8150
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+49 511 9818-4006
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Corporates
+49 511 9818-9690
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NORD/LB Fixed Income Research
Page 104 of 109
Issuer Guide 2016 – Eurozone (EU19)
Disclaimer
This investment recommendation/investment strategy recommendation (hereinafter the „Investment Recommendation”) was drawn up
by NORDDEUTSCHE LANDESBANK GIROZENTRALE („NORD/LB“). The supervisory authorities in charge of NORD/LB are the European Central Bank („ECB“), Sonnemannstraße 20, D-60314 Frankfurt am Main, and the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleitungsaufsicht - „BaFin“), Graurheindorfer Str. 108, D-53117 Bonn, and Marie-Curie-Str. 24-28, D-60439
Frankfurt am Main. Details about the extent of NORD/LB´s regulation by the respective authorities are available on request. Generally,
this Investment Recommendation or the products or services described therein have not been reviewed or approved by the competent
supervisory authority.
This Investment Recommendation is addressed exclusively to recipients which are professional and institutional clients in Germany, the
United Kingdom, Austria, Belgium, Italy, Spain, Denmark, Finland, Estonia, France, Greece, Ireland, Luxembourg, the Netherlands,
Poland, Portugal, Sweden, the Czech Republic, Canada, Switzerland and Cyprus (hereinafter the „Relevant Persons” or „Recipients”).
The contents of this Investment Recommendation are disclosed to the Recipients on a strictly confidential basis and, by accepting this
Investment Recommendation, the Recipients agree that they will not forward to third parties, copy and/or reproduce this Investment
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In particular, neither this Investment Recommendation nor any copy thereof must be forwarded or transmitted to the United States of
America or its territories or possessions or distributed to any employees or affiliates of Recipients resident in these jurisdictions.
This Investment Recommendation was drawn up in compliance with the applicable provisions of the German Securities Trading Act
(Wertpapierhandelsgesetz) and the Regulation Governing the Analysis of Financial Instruments (Verordnung über die Analyse von
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divisions responsible for the issuance of securities and investment banking activities, for trading (including proprietary trading) in and
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This Investment Recommendation and the information contained herein have been compiled and are provided exclusively for information
purposes. This Investment Recommendation is not intended as an investment incentive. It is provided for the Recipient’s personal information, subject to the express understanding, which is acknowledged by the Recipient, that it does not constitute any direct or indirect
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All actual details, information and statements contained herein were derived from sources considered reliable by NORD/LB. However,
since these sources are not verified independently, NORD/LB cannot give any assurance as to or assume responsibility for the accuracy
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developments described herein. Neither NORD/LB nor its governing bodies or employees can give any assurance as to or assume any
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persons or otherwise).
Past performances are not a reliable indicator of future performances. Exchange rates, price fluctuations of the financial instruments and
similar factors may have a negative impact on the value and price of and return on the financial instruments referred to herein or any
instruments linked thereto. An evaluation made on the basis of the historical performance of any security does not necessarily give an
indication of its future performance.
This Investment Recommendation neither constitutes any investment, legal, accounting or tax advice nor any representation that an
investment or strategy is suitable or appropriate in the light a Recipient’s individual circumstances, and nothing in this Investment Recommendation constitutes a personal recommendation to the Recipient thereof. The securities or other financial instruments referred to
herein may not be suitable for the Recipient’s personal investment strategies and objectives, financial situation or individual needs.
Also this Investment Recommendation as a whole or any part thereof is not a sales or other prospectus. Correspondingly, the information contained herein merely constitutes an overview and does not form the basis for an investor‘s potential decision to buy or sell. A
full description of the details relating to the financial instruments or transactions which may relate to the subject matter of this Investment
Recommendation is set forth in the relevant (financing) documentation. To the extent that the financial instruments described herein are
NORD/LB’s own issues and subject to the requirement to publish a prospectus, the conditions of issue applicable to any individual financial instrument and the relevant prospectus published with respect thereto as well NORD/LB’s relevant registration form, all of which are
available for downloading at www.nordlb.de and may be obtained, free of charge, from NORD/LB, Georgsplatz 1, 30159 Hanover, shall
be solely binding. Any potential investment decision should at any rate be made exclusively on the basis of such (financing) documentation. This Investment Recommendation cannot replace personal advice. Before making an investment decision, each Recipient should
consult an independent investment adviser for individual investment advice with respect to the appropriateness of an investment in
financial instruments or investment strategies as contemplated herein as well as for other and more recent information on certain investment opportunities.
Each of the financial instruments referred to herein may involve substantial risks, including capital, interest, index, currency and credit
risks, political, fair value, commodity and market risks. The financial instruments could experience a sudden substantial deterioration in
value, including a total loss of the capital invested. Each transaction should only be entered into on the basis of the relevant investor’s
assessment of its individual financial situation as well as of the suitability and risks of the investment.
NORD/LB and its affiliates may, for their own account or for the account of third parties, participate in transactions involving the financial
instruments described herein or any underlying assets, issue further financial instruments having terms that are the same as or similar to
those governing the financial instruments referred to herein as well as enter into transactions to hedge positions. Such actions may affect
the price of the financial instruments described in this Investment Recommendation.
To the extent the financial instruments referred to herein are derivatives, they may involve an initial negative market value from the
customer’s point of view, depending on the terms and conditions prevailing as of the transaction date. Furthermore, NORD/LB reserves
NORD/LB Fixed Income Research
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the right to pass on its economic risk from any derivative transaction it has entered into to third parties in the market by way of a mirror
image counter-transaction.
Further information on any fees which may be included in the sales price is set forth in the brochure „Customer Information Relating to
Securities Transactions“ which is available at www.nordlb.de.The information set forth in this Investment Recommendation shall supersede all previous versions of any relevant Investment Recommendation and refer exclusively to the date as of which this Investment
Recommendation has been drawn up. Any future versions of this Investment Recommendation shall supersede this present version.
NORD/LB shall not be under any obligation to update and/or review this Investment Recommendation at regular intervals. Therefore, no
assurance can be given as to its currentness and continued accuracy.
By making use of this Investment Recommendation, the Recipient shall accept the foregoing terms and conditions.
NORD/LB is a member of the protection scheme of Deutsche Sparkassen-Finanzgruppe. Further information for the Recipient is set
forth in clause 28 of the General Terms and Conditions of NORD/LB or at www.dsgv.de/sicherungssystem.
Additional information for recipients in the UK
NORD/LB subject to limited regulation by the Financial Conduct Authority (“FCA”) und Prudential Regulation Authority (“PRA”). Details
about the extent of our regulation by the FCA and PRA are available from NORD/LB on request.
This Investment Recommendation is a financial promotion. Relevant Persons in the UK should contact NORD/LB’s London Branch,
Investment Banking Department, Telephone: 0044 / 2079725400 with any queries.
Investing in financial instruments referred to in this Investment Recommendation may expose an investor to a significant risk of losing all
of the amount invested.
Additional information for recipients in France
NORD/LB is partially regulated by the Autorité des Marchés Financiers for the conduct of French business. Details about the extent of
our regulation by the respective authorities are available from us on request.
This Investment Recommendation constitutes investment research within the meaning of Article 24(1) Directive 2006/73/EC, Article
L.544-1 and R.621-30-1 of the French Monetary and Financial Code and does qualify as research recommendation under Directive
2003/6/EC and Directive 2003/125/EC.
Additional information for recipients in Austria
None of the information contained in this Investment Recommendation constitutes a solicitation or offer by NORD/LB or its affiliates to
buy or sell any securities, futures, options or other financial instruments or to participate in any other strategy. Only the published prospectus pursuant to the Austrian Capital Market Act should be the basis for any investment decision of the Recipient.
For regulatory reasons, products mentioned in this Investment Recommendation may not being offered into Austria and are not available
to investors in Austria. Therefore, NORD/LB might not be able to sell or issue these products, nor shall it accept any request to sell or
issues these products, to investors located in Austria or to intermediaries acting on behalf of any such investors.
Additional information for recipients in Belgium
Evaluations of individual financial instruments on the basis of past performance are not necessarily indicative of future results. It should
be noted that the reported figures relate to past years.
Additional information for recipients in Cyprus
This Investment Recommendation constitutes investment research within the meaning of the definition section of the Cyprus Directive
D1444-2007-01(No 426/07). Furthermore, this material is provided for informational and advertising purposes only and does not constitute an invitation or offer to sell or buy or subscribe any investment product.
Additional information for recipients in Denmark
This Investment Recommendation does not constitute a prospectus under Danish securities law and consequently is not required to be
nor has been filed with or approved by the Danish Financial Supervisory Authority as this Investment Recommendation either (i) has not
been prepared in the context of a public offering of securities in Denmark or the admission of securities to trading on a regulated market
within the meaning of the Danish Securities Trading Act or any executive orders issued pursuant thereto, or (ii) has been prepared in the
context of a public offering of securities in Denmark or the admission of securities to trading on a regulated market in reliance on one or
more of the exemptions from the requirement to prepare and publish a prospectus in the Danish Securities Trading Act or any executive
orders issued pursuant thereto.
Additional information for recipients in Greece
The information contained herein describes the view of the author at the time of its publication and it must not be used by its Recipient
unless having first confirmed that it remains accurate and up to date at the time of its use.
Past performance, simulations or forecasts are therefore not a reliable indicator of future results. Mutual funds have no guaranteed
performance and past returns do not guarantee future performance.
Additional information for recipients in Ireland
This Investment Recommendation has not been prepared in accordance with Directive 2003/71/EC, as amended, on prospectuses (the
“Prospectus Directive”) or any measures made under the Prospectus Directive or the laws of any Member State or EEA treaty adherent
state that implement the Prospectus Directive or those measures and therefore may not contain all the information required where a
document is prepared pursuant to the Prospectus Directive or those laws.
Additional information for recipients in Luxembourg
Under no circumstances shall this Investment recommendation constitute an offer to sell, or issue or the solicitation of an offer to buy or
subscribe for Products or Services in Luxembourg.
Additional information for recipients in Netherlands
The value of your investments may fluctuate. Results achieved in the past do not offer any guarantee for the future (De waarde van uw
belegging kan fluctueren. In het verleden behaalde resultaten bieden geen garantie voor de toekomst).
Additional information for recipients in Poland
This Investment Recommendation does not constitute a recommendation within the meaning of the Regulation of the Polish Minister of
NORD/LB Fixed Income Research
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Finance Regarding Information Constituting Recommendations Concerning Financial Instruments or Issuers thereof dated 19 October
2005.
Additional information for recipients in Portugal
This Investment Recommendation is intended only for institutional clients and may not be (i) used by, (ii) copied by any means or (iii)
distributed to any other kind of investor, in particular not to retail clients. This Investment Recommendation does not constitute or form
part of an offer to buy or sell any of the securities covered by the report nor can be understood as a request to buy or sell securities
where that practise may be deemed unlawful. This Investment Recommendation is based on information obtained from sources which
we believe to be reliable, but is not guaranteed as to accuracy or completeness. Unless otherwise stated, all views herein contained are
solely expression of our research and analysis and subject to change without notice.
Additional information for recipients in Sweden
This Investment Recommendation does not constitute or form part of, and should not be construed as a prospectus or offering memorandum or an offer or invitation to acquire, sell, subscribe for or otherwise trade in shares, subscription rights or other securities nor shall
it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. This Investment Recommendation has not been approved by any regulatory authority. Any offer of securities will only be made pursuant to an applicable prospectus exemption under EC Prospectus Directive, and no offer of securities is being directed to any person or investor in any jurisdiction where such action is wholly or partially subject to legal restrictions or where such action would require additional prospectuses, other
offer documentation, registrations or other actions.
Additional information for recipients in Switzerland
This Investment Recommendation has not been approved by the Federal Banking Commission (merged into the Swiss Financial Market
Supervisory Authority “FINMA” on 1 January 2009).
NORD/LB will comply with the Directives of the Swiss Bankers Association on the Independence of Financial Research, as amended.
This Investment Recommendation does not constitute an issuing prospectus pursuant to article 652a or article 1156 of the Swiss Code
of Obligations. This Investment Recommendation is published solely for the purpose of information on the products mentioned in this
advertisement. The products do not qualify as units of a collective investment scheme pursuant to the Federal Act on Collective Investment Schemes (CISA) and are therefore not subject to the supervision by the Swiss Financial Market Supervisory Authority (FINMA).
Additional information for recipients in Canada
This Investment Recommendation has been prepared for informational purposes only in relation to the products contained in this material and is not, under any circumstances to be construed as an offering memorandum or as an offering of any securities for sale directly or
indirectly in any province or territory of Canada.
No securities commission or similar regulatory authority in Canada has passed on the merits of these securities nor has it reviewed this
material and any representation to the contrary is an offence.
Relevant selling restrictions, if any, are contained in the prospectus or other documentation for the respective product.
Additional information for recipients in Estonia
It is advisable to examine all the terms and conditions of the services provided by NORD/LB. If necessary, Recipient of this Investment
Recommendation should consult with an expert.
Additional information for recipients in Finland
The financial products described in this Investment Recommendation may not be offered or sold, directly or indirectly, to any resident of
the Republic of Finland or in the Republic of Finland, except pursuant to applicable Finnish laws and regulations. Specifically, in the case
of shares, those shares may not be offered or sold, directly or indirectly, to the public in the Republic of Finland as defined in the Finnish
Securities Market Act (746/2012, as amended). The value of investments may go up or down. There is no guarantee to get back the
invested amount. Past performance is no guarantee of future results.
Additional information for recipients in Czech Republic
There is no guarantee to get back the invested amount. Past performance is no guarantee of future results. The value of investments
could go up and down
The information contained in this Investment Recommendation is provided on a non-reliance basis and its author does not accept any
responsibility for its content in terms of correctness, accuracy or otherwise.
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Arrangements for the confidential treatment of sensitive customer and business data as well as for avoiding and handling conflicts of
interest
NORD/LB has separated its business divisions that may have access to sensitive customer and business data (confidential areas) from
its other divisions (e.g. NORD/LB Research) in terms of functions and locations and/or via relevant data processing arrangements.
The disclosure of confidential information that may have an impact on the prices of securities is monitored by NORD/LB’s Compliance
Unit which is independent of its trading, operational and settlement divisions. This independent unit controls the transactions undertaken
by NORD/LB and its employees on a daily basis to ensure that they are in line with market conditions. The Compliance Unit may impose
such trading bans and restrictions as may be necessary to ensure that information, which may affect the prices of securities, is not misused and to prevent confidential information from being disclosed to divisions that are only allowed to use information available to the
general public. To avoid conflicts of interest in connection with the preparation of financial analyses, the analysts of NORD/LB are
obliged to inform the Compliance Unit of any studies being drawn up and must not invest in the financial instruments handled by them.
They are obliged to notify the Compliance Unit of all transactions (including external transactions) undertaken by them for their own
account or for the account or on behalf of third parties. Thus the Compliance Unit is in a position to identify all unauthorized transactions
undertaken by the analysts, such as insider trading and front and parallel running. When a Investment Recommendation involving conflicts of interest to be disclosed within the NORD/LB Group is drawn up, any information on such conflicts of interest will only be made
available by the Compliance Unit upon completion of the Investment Recommendation. Any subsequent amendment of the relevant
Investment Recommendation may only be made upon consultation with the Compliance Unit and when it has been ensured that the
results of the study are not affected by the knowledge of such conflicts of interest. Further information on these matters is set forth in our
Investment Recommendation or Conflict of Interest Policy which is available from the Compliance Unit of NORD/LB upon request.
Time of going to press
30 Novemer 2016 11:46h (CET)
Disclosure of NORD/LB’s potential conflicts of interest according to § 34b Abs. 1 WpHG and
Article 5 and 6 according to the Commission Delegated Regulation (EU) 2016/958 of 9 March 2016
NORD/LB or one of its affiliated companies is a market maker or liquidity provider in the financal instruments of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, The Netherlands, Portugal and Spain.
Additional disclosures
Sources and price indications
Depending on the issuer, we use information from financial data suppliers, our own estimates, company data and the public media for the
preparation of our Investment Recommendations. Unless otherwise stated in the report, prices indicated relate to the closing price on the
previous day. Fees and commissions apply to securities (buy, sell, hold) and these may reduce the yield on investments.
Analytical methods and updates
In the preparation of Investment Recommendations, we take company-specific methods used for fundamental securities’ analysis and
quantitative/statistical methods, as well as technical analytical methods as the basis for valuations and for the regular updates. All assumptions and analytical derivations related to our recommendation may be extracted from the underlying research analysis. It should be
noted that the results of analyses provide a snapshot overview and that past developments do not constitute a reliable indicator for future
profits. The basis of the valuations is subject to unforeseen change at any time, potentially leading to different conclusions. The present
report is prepared on a yearly basis. Recipients are not automatically entitled to receive report update publications. Detailed information
with respect to our rating methodology is available at the webpage www.nordlb-pib.de/Bewertungsverfahren.
Recommendation system
Share of recommendation (12 months)
Positive: Positive expectations for the issuer, a security type or a specif-
Positive:
47%
Neutral:
46%
Negative:
7%
ic security of an issuer.
Neutral:
Neutral expectations for the issuer, a security type or a specific security of an issuer.
Negative: Negative expectations for the issuer, a security type or a
specific security of an issuer.
Relative value (RV): Relative value recommendation in comparison to
a market segment, an issuer or a maturity.
NORD/LB Fixed Income Research
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Recommendation history (12 months)
An overview of all our bond recommendations during the last 12 months is available at the webpage www.nordlbpib.de/empfehlungsuebersicht_renten. Corresponding password: "renten/Liste3".
Issuer / security
Germany
Germany
Germany
Germany
Germany
France
France
France
France
France
France
Italy
Italy
Spain
Spain
Spain
Spain
Netherlands
Netherlands
Netherlands
Belgium
Austria
Austria
Austria
Finland
Ireland
Greece
Portugal
Slovakia
Luxemburg
Slovenia
Lithuania
Latvia
Estonia
Cyprus
Malta
Date
Recommendation
Bond type
Cause
30.11.2016
23.11.2016
07.07.2016
15.06.2016
06.01.2016
30.11.2016
23.11.2016
07.07.2016
15.06.2016
09.03.2016
07.01.2016
30.11.2016
07.07.2016
30.11.2016
07.07.2016
09.03.2016
07.01.2016
30.11.2016
23.11.2016
15.06.2016
30.11.2016
30.11.2016
15.06.2016
09.03.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
30.11.2016
Positiv
Negativ
Positiv
Negativ
Positiv
Neutral
Negativ
Neutral
Negativ
Negtiv
Neutral
Neutral
Neutral
Positiv
Positiv
Negativ
Positiv
Neutral
Negativ
Negativ
Neutral
Neutral
Negativ
Negativ
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Government
Fundamental
RV
Fundamental
RV
Fundamental
Fundamental
RV
Fundamental
RV
RV
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
RV
Fundamental
Fundamental
RV
RV
Fundamental
Fundamental
RV
RV
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
Fundamental
NORD/LB Fixed Income Research
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Distribution: 20.12.2016 13:58