Treasury Corporation of Victoria Investor Presentation May 2015

Treasury Corporation of Victoria

Investor Presentation

May 2015

May 2015 Treasury Corporation of Victoria 2

Treasury Corporation of Victoria (TCV)

• established 1 January 1993, as the centralised financing authority and financial advisor for the State of Victoria

- single interface with financial markets

- independent Board reports directly to Treasurer of Victoria

• mandated provider of treasury risk management services to the State, government agencies and departments – our clients

• obligations are guaranteed by the State of Victoria

• guarantee

- TCV’s borrowings & securities are guaranteed by the Government of Victoria under section 32(1) of the Treasury Corporation of Victoria Act 1992

- the guarantee is a direct and unconditional obligation of the Government of Victoria, payable out of the Consolidated Fund

• AAA/Aaa rated (stable)

• Interest Withholding Tax (IWT) free.


Agenda

Three areas for discussion:

1. Victorian economic overview

2. Victorian Government finances and budget

3. TCV funding requirement 2015-16


State of Victoria

Economic Significance 331.184 338.035 Capital: Melbourne Nominal GSP, 2014 (A$b): 350.3Unemployment rate May 15, %: 6.1 Share of national economy, %: 22

Unemployment rate, 5y ave %: 5.7 Real GSP growth, Jun 14, (% yoy): 1.7

Population (Sep 2014): 5.9 million Average GSP growth, 5y ave %: 2.0

Victoria's trade, 2013-14 331.184 338.035

Goods Services Total % share of national tradeExports (A$b) 24.0 13.4 37.4 11.3Imports (A$b) 66.0 16.3 82.3 24.3

Trade by major commodity (2013-14)

Exports $bn % Total Imports $bn % Total Education related travel services 4.7 12.6 Crude petroluem 6.7 8.1Personal travel (excl. education) 2.9 7.8 Personal travel (excl. education) 6.2 7.5Milk, cream, whey & yoghurt 1.4 3.7 Passenger motor vehicles 5.7 6.9Passenger motor vehicles 1.3 3.6 Freight transport 2.6 3.2Wool & other animal hair 1.3 3.5 Refined petroluem 2.5 3.1Meat (excluding beef) 1.2 3.1 Goods vehicles 1.6 2.0Wheat 1.0 2.7 Passenger transport 1.5 1.9Beef 1.0 2.7 Vehicle parts & accessories 1.4 1.8Aluminium 1.0 2.7 Telecom equipment & parts 1.2 1.4Professional consulting services 0.9 2.5 Furniture 1.1 1.3

Trade by Major trading partners (2013-14)

Exports $bn % Total Imports $bn % Total China 4.5 18.6 China 14.4 21.9United States 2.1 8.7 United States 7.4 11.2Japan 1.9 7.8 Japan 4.2 6.4New Zealand 1.8 7.7 Germany 4.0 6.0Republic of Korea 1.1 4.6 Malaysia 3.7 5.6

May 2015 Treasury Corporation of Victoria

The national economy is transitioning

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

0

25

50

75

100National mining investment (actual and expected)*

$ b

illio

n

*Dotted lines indicate expected capital spending adjusted for average realisation ratios

Sources: Australian Bureau of Statistics; Department of Treasury and Finance

5


Drivers of growth are varied

Mining states Non-mining states-1

0

1

2

3

4

5

State final demand Net interstate and international trade GSP

per

cen

tag

e p

oin

ts

6

Contribution to GSP growth, 2013-14

Sources: Australian Bureau of Statistics; Department of Treasury and Finance


Components of the Victorian economy

-40

-20

0

20

40

60

80Share of GSP 2013-14

Victoria Mining states

per

cen

t

7Sources: Australian Bureau of Statistics; Department of Treasury and Finance


Population growth remains high

Sources: Australian Bureau of Statistics, Department of Treasury and Finance

8

Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-141.25

1.50

1.75

2.00

2.25

Annual population growth

Victoria Australia

per

cen

t


Dwelling investment share of GSP

9


2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-143.0

4.0

5.0

6.0

7.0

8.0

VIC NSW QLD WA SA TAS

per

cen

t


Full-time employment has remained flat


10

Mar

-200

5

Mar

-200

6

Mar

-200

7

Mar

-200

8

Mar

-200

9

Mar

-201

0

Mar

-201

1

Mar

-201

2

Mar

-201

3

Mar

-201

4

Mar

-201

595

105

115

125

135

145

Full-time jobs Part-time jobs Hours worked

Ind

ex (

2005

ave

rag

e =

100

)

Victorian government finances and budget


Medium-term fiscal strategy

The Government fiscal parameters:

• the parameters reflect Government’s commitment to deliver high-quality services and infrastructure in a fiscally responsible manner

• they also provide for a sustainable level of net debt

• the strategy will require continued disciplined financial management.

12

Financial measures Parameters

Operating surplus A net operating surplus consistent with maintaining general government net debt at a sustainable level over the medium term

Infrastructure investment Public infrastructure will grow steadily over time to meet the needs of a growing population

Net debt General government net debt as a percentage of GSP to be maintained at a sustainable level over the medium term


State government revenue budget

State Taxation; 34.3%

Dividends, TER & in-terest; 3.6%

Sales of goods & services; 12.2%

Commonwealth Grants; 23.1%

GST; 23.0%

Other revenue; 3.9%

Total$55.5 bn


State taxation revenue in detail

14

Source: Victorian Department of Treasury and Finance

Payroll; 28%

Land transfer duty; 26%Gambling;

10%

Motor vehicle taxes; 12%

Land tax; 9%

Fire services property levy;

3%

Other 11%

Major components of taxation revenue 2015-16


Where the government spends

Source: Victorian Budget

Transport and communications

12%

Housing and community ameni-

ties6%

Social security and welfare

8%

Health28%

Education26%

Public order and safety

11%

Other purposes9%

Total$54.3 bn


Victorian Government – operating surplus


Net debt to fall in 2015-16

Source: Department of Treasury and Finance

198199

199199

199199

199199

199

1998... 199200

200200

200200

200200

200200

200201

201201

201201

201201

201201

0

2

4

6

8

10

12

14

16

18Net debt to GSP

per c

ent o

f GSP

S&P upgrades Victoria to AAA

S&P downgrades Victoria to AA


Victorian Government – AAA rated

Standard & Poor’s Ratings Services“We expect that the government will remain fiscally disciplined to ensure the general government accrual operating position remains in surplus over the forecast period. In our view, the Victorian government's budgetary performance is likely to remain broadly consistent with its recent history…“

“…we expect the state's total tax-supported debt to reduce toward 80% of operating revenues, from 88% in 2013, as the government increases the proportion of infrastructure funded through cash operating surpluses and the sale of the Port of Melbourne. Standard & Poor's considers this level of debt to be consistent with the 'AAA' rating on the state.” 5th May 2015

Both Standard and Poor’s Ratings Services and Moody’s Investor Services will conduct an in-depth analysis of the budget and its medium-term impact on the State’s financial and debt profile as part of their normal monitoring process which is scheduled for June 2015.


Budget at a glance

2015-16 Budget aggregates (general government sector)

19

2015-16 Budget

2016-17 Estimate

2017-18 Estimate

2018-19 Estimate

Net result from transactions ($bn) 1.2 1.4 1.4 1.8

Net debt ($bn) 16.9 19.3 19.5 19.8

Net debt to GSP (%) 4.4 4.8 4.6 4.4

Net infrastructure investment ($bn) 5.2 6.5 4.5 5.1

• growing economy focused on health, education, jobs and transport

• refocused infrastructure program

• new government is committed to maintaining AAA rating

• operating surplus of $1.2 billion in 2015-16

• expect to finalise the medium term lease of the Port of Melbourne operations, settlement Q1 2016

• Gross State Product to grow by 2.50 per cent in 2015‑16

• net debt of 4.4 per cent of GSP in 2015-16

Funding strategy 2015-16


TCV – funding sources

• 12 dealer panel members• 7 benchmark maturities between 2016 – 2026• minimum outstanding target of A$4-5 billion per maturity• total benchmark issue outstandings $A31billion• 5 non-benchmark maturities totalling $A2.4 billion• maturities dates 2015, 2030, 2032 and 2040

Australian Dollar Note Program

• $US3 billion• multi Currency program• outstandings A$95 million

Euro Medium Term Note Programme

• $A5 billion program• 1-365 day maturities• outstandings A$2.6 billion

Australian Dollar Promissory Note

Program

• US$5 billion• multi currency• 1-365 day maturities• outstandings (A$ equivalent) $24 million

Euro Commercial Paper Program


TCV funding requirement 2015-16

22

2015-16 Budget

$ millions

2016-17 Forecast $ millions



New Money Requirement

- General Government Sector -5,525 2,546 195 1,068

- Participating Authorities 784 360 406 508

Client Loan Refinancing 1,103 1,137 2,438 3,159

TCV Funding Requirement -3,638 4,043 3,039 4,735


TCV funding strategy 2015-16

Key points:• the privatisation program significantly influences the funding strategy for 2015-16

• the General Government sector will undertake a debt repayment of approximately $5.5 billion, resulting in a net funding requirement of negative $3.6 billion

• approximately $1.9 billion of the 2015-16 funding requirement will be raised through the Domestic Benchmark Bond program

• privatisation proceeds will reduce the level of short term debt outstandings and any excess funds will be invested against future maturing TCV liabilities, specifically the 15 November 2016 bond

• the short-term ECP and Australian P-note programs will increase outstandings in the lead up to the receipt of the privatisation receipts

• there are no plans to issue non-AUD securities or inflation linked debt at this time

• it is unlikely a new benchmark bond will be issued in 2015-16.

23


TCV Domestic Bond outstandingsas at 30 April 2015

2424

8.0%

Aug

ust

2015

2.75

% N

ovem

ber

2015

5.75

% N

ovem

ber

2016

3.5%

Nov

embe

r 20

17

5.50

% N

ovem

ber

2018

6.0%

Jun

e 20

20

6.0%

Oct

ober

202

2

5.5%

Dec

embe

r 20

24

5.5%

Nov

embe

r 20

26

4.75

% N

ovem

ber

2030

4.25

% D

ecem

ber

2032

4.0%

Nov

embe

r 20

40

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

$A millions


TCV bond distribution and turnover

TCV Bond Holders (estimate)TCV Bond Turnover

Domestic 40%

Pro-market 35%

TCV 12%

Non-JapanAsia 2%

Japan3%

Europe 7%

Nth America

1%

Major Bank42%

Other ADI7%

Central Bank9%

Domestic Asset

Manager30%

Other Govt2%

TCV Bond Holders (estimate)

InternationalInvestors10%


TCV Commonwealth bond spreadas at 30 April 2015

26

01-Apr-13 01-Oct-13 01-Apr-14 01-Oct-14 01-Apr-150.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

TCV-Bond Spread 10 year TCV-Bond 3 Year Spread

Per

cen

tag

e (%

)


Semi government spread to TCVas at 30 April 2015

27

0 1 2 3 4 5 6 7 8 9 10-5

0

5

10

15

20

25

30

QTC (AA+/Aa1) NSW (AAA/ Aaa) WATC (AA+ neg outlook/Aa1)

Sp

read

to

TC

V


Summary

Strong Credit Rating• Victoria is rated AAA/Aaa stable outlook by credit rating agencies Standard & Poor’s

and Moody’s Investor Services• the State has a strong financial profile, and has an economic strategy that supports its

triple-A rating.

Sound Budget Position• focused on economic growth, jobs, education, hospitals and transport• ongoing budget surplus forecast• proven ability to constrain expenditure.

Funding Strategy• the updated funding requirement for 2015-16 is negative $3.6 billion• the General Government Sector will be undertaking a debt repayment

of $5.5 billion• $1.9 billion of long term will be raised through the domestic benchmark bond program.


Contact Details

Justin Lofting

General Manager, Treasury

Tel: +61 3 9651 4828

Email: [email protected]

29

Bill Whitford

Managing Director

Tel: +61 3 9651 4800

Email: [email protected]


Thank you

DisclaimerThis publication is: provided for the benefit of TCV clients for general information purposes only, based on facts and data available to TCV at the time of its preparation. Opinion and forecasts do not guarantee future outcomes or rates. Outcomes and rates will be subject to variations due to fluctuations and changed financial market or economic conditions. TCV is not under any obligation to update the information in this publication if it becomes aware of a change or inaccuracy in the information. Accordingly, TCV does not warrant or represent that the information contained in this publication is complete, accurate or suitable for use. To the fullest extent permitted by law, TCV accepts no liability to any person for any direct or indirect loss, damage, cost or expense whatsoever arising from use of information contained in this publication (whether arising from negligence or otherwise).

Any reference to credit ratings has been provided solely for the information of “wholesale clients” and must not be directly or indirectly disclosed to “retail clients” within the meaning of section 761G of the Corporations Act 2001 (Cth).

For more information on TCV, our products and services, please visit:

www.tcv.vic.gov.au

Documents

Treasury Corporation of Victoria Investor Presentation May 2015