INVESTOR PRESENTATION September 2015
Executive Summary AAA/Aaa rated Danish Local Government funding agency, established in 1899 Association (membership organization) with direct, joint and several liability of all of the Danish Local Governments Strong guarantee structure based on the entire taxpaying population of Denmark Danish economy is strong with one of the lowest public debt levels in Europe 0% BIS risk weighting in several jurisdictions Closest proxy to Danish sovereign risk Conservative risk management No loan losses in more than 116 years of operation Strong liquidity position Leverage ratio year-end 2014: 3.1% LCR: Confirmed level 1 by the Danish FSA
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Agenda 1. Kingdom of Denmark and the Local Government Sector 2. Organization 3. Business 4. Funding 5. Appendix
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Kingdom of Denmark Fundamentals
2013
2014
2015E*
Kingdom – constitutional monarchy DK
Capital: Copenhagen Population: 5.6m
EU27
DK
EU27
DK
EU27
Real GDP Growth %
0.5
0.4
1.4
1.0
1.2
1.4
CPI %
0.9
1.8
0.7
0.5
1.4
1.2
Unemployment Rate
5.8
10.9
4.8
11.7
4.6
11.5
General Govt Balance
-0.9
-3.9
-1.5
-2.5
-3.1
-2.3
General Govt Debt *
44.7
88.5
44.1
96.0
44.9
95.4
Size: 44,000 km2 Credit rating: AAA/Aaa Currency: DKK EU member since 1973 – Exceptions: currency, defence and judicial cooperation
Economy
% of GDP * Source: European Commission, bank estimates Source: Ministry of Finance, Denmark and IMF
Strong fundamentals Low debt level and low budget deficit Danish government debt is stable compared to EUR countries
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Local Government Sector in Denmark Local government structure Danish Local Governments are defined by law and their autonomy is secured through the constitution and other legislation. The Local government system is divided into two levels: Regions and Municipalities.
Central Government
5 Regions
98 Municipalities
The current Local Government structure is a result of a reform in 2007. The objective of the reform was to create room for more efficiency by reducing the number of Municipalities and Regions and change the split of tasks between the different levels of Government.
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Local Government Sector in Denmark Central Government:
Local Government:
Foreign policy Defense Police Universities Major roads Railways Supervision of lower parts of government Equalisation between local governments
Municipal tasks Care for children Care for elderly Primary schools Public transportation Utilities Local roads Environment Employment Regional tasks Hospitals and health care Regional development Specialized social institutions
Municipalities and Regions are responsible for the majority of the services provided in the Danish welfare system. The Local Government Sector expenditures amount to 2/3 of total public expenditures and approx. 26% of GDP. 29 September 2015
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Local Government Sector in Denmark Revenues and supervision Main source of revenue is income tax
Income tax - 45.7%
The Local Governments are closely monitored and supervised by the Ministry for Economic Affairs and the Interior
Grants - 25.71%
Budget cooperation between Central Government and Local Governments
Property tax - 5.4%
Charges - 18.81%
Other - 2.2%
Balanced budgets required Corporate tax 1.67%
Equalisation system in place
New loans - 0.51%
Borrowing is highly regulated – only allowed for capital investments Default not allowed Low debt level – approx. 5.5% of GDP
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Agenda 1. Kingdom of Denmark and the Local Government Sector 2. Organization 3. Business 4. Funding 5. Appendix
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Organization Legal basis Association, established by special law in 1899. The law was revised in 2006
Guarantee structure KommuneKredit is by law organized as an association (membership organization) Membership is restricted to Danish Municipalities and Regions only Members are directly, jointly and severally liable for all of KommuneKredit’s obligations Municipalities have an unlimited right to levy taxes on income and property Currently all Municipalities and Regions are members of KommuneKredit and thereby represent the entire population of Denmark The guarantee of the members can be called upon any member without a preceding court decision – the guarantee has never been exercised No loan losses in more than 115 years of operation Substantial reserves Supervised by the Ministry for Economic Affairs and the Interior
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Agenda 1. Kingdom of Denmark and the Local Government Sector 2. Organization 3. Business 4. Funding 5. Appendix
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Business Mission Provide low cost funding for Danish Local Governments through the non-profit status of KommuneKredit Leading provider of financial products to Local Governments in Denmark
Clients Danish Regions and Municipalities Semi-public entities guaranteed by Regions or Municipalities (waterworks, waste incineration, district heating etc.) Cross-border lending not allowed Excellent asset quality as all lending to clients are considered extremely secure and 0% risk weighted In accordance with Central Government regulation clients are only allowed to take up loans for certain capital investments
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Risk Management Risk Management policy
Credit risk
KommuneKredit’s policy is to minimize financial risks and carefully identify, manage and control these risks
Market risk Strict hedging principles for lending and funding transactions Interest rate and currency risk is kept at a minimum Positive liquidity position across the curve required by the Ministry for Economic Affairs and the Interior Reserves are invested in plain vanilla bonds with short duration The Ministry for Economic Affairs and the Interior has set a fixed limit for maximum interest rate risk of 4.5% of equity
Lending only to Danish Local Governments and 100% guaranteed semi-public entities Conservative investment policy: Only highly rated investments with a minimum rating of AA-/Aa3 Derivatives for hedging purposes only and only with highly rated counterparties Transforming unilateral CSAs to new bilateral CSAs No loan losses in more than 115 years of operation No losses related to defaults in the financial sector
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Business Gross lending
(EUR/DKK: 7.4604)
EUR bn
Competition
6
KommuneKredit is the sole Local Government funding agency in Denmark KommuneKredit operates in full and open competition with banks and other lenders High market share – approx. 90% of total lending
5 4 3 2 1 0 2010
2011
2012
2013
2014
Outstanding loans and leases
Products offered to clients
EUR bn
25
Central Government regulates Local Government’s borrowing
20
Loans, overdraft facilities
15
Financial leasing Derivatives for hedging purposes only Debt advisory services
10 5 0 2010
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2011
2012
2013
2014 Page 13
Treasury Portfolio Current portfolio (as of end September 2015): DKK 27.9bn (EUR 3.7bn)
Maturity profile Issuer type
60%
%
50% Covered bonds
54%
Govies, supras etc.
22%
Agencies etc.
18%
40% 30% 20% 10%
Financials
6%
0% 0-3m
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3-6m
6-9m
9-12m
1-2y
2-3y
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Agenda 1. Kingdom of Denmark and the Local Government Sector 2. Organization 3. Business 4. Funding 5. Appendix
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Funding Budget The funding budget has been growing in past years due to increased lending volumes and new regulations from the Ministry for Economic Affairs and the Interior Maximum pre-funding position set by the Ministry for Economic Affairs and the Interior at 25% of the total loan portfolio Total long-term funding budget for 2015: EUR 6-8bn Sizeable short-term funding budget
Funding strategy Diversification on markets, currencies, products and investors Maintaining long-term investor relations Benchmark programme – plan to do one or two benchmark issue every year Public issues in other markets eg. Denmark, Switzerland, Japan Private placements that offer flexibility and meet specific investor demand Short term funding in the ECP market
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A selection of KK’s outstanding bonds
DKK issuance KommuneKredit is a frequent issuer in DKK Most liquid issues are: – Up to 5 years, fixed rate, bullet, not callable – Offered through auctions and according to demand from clients Other issues: – Long dated – up to 40 years, fixed rate, amortizing, callable ISIN
Coupon
Maturity
Issued Amount
DK0008927262
4%
01.01.2016
5.109bn
DK0008927502
2%
01.01.2017
1.954bn
DK000892310
2%
01.01.2019
0.938bn
DK0008923196
2%
10.11.2024
2.086bn
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Funding Strategic markets
Funding by markets in 2014
Benchmarks Denmark Europe Switzerland Asia, Americas other markets
Europe 55% Americas 29% Asia 9% Middle East & Africa 4%
Sources Public issues MTNs Uridashi Private placements, schuldscheine
Denmark 3%
Funding by currency in 2014 USD 58%
Documentation
DKK 20%
EUR 25bn EMTN Programme EUR 5bn ECP Programme Uridashi/Samurai shelf with sovereign status
GBP 10% JPY 6% Other 4% EUR 2%
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Agenda 1. Kingdom of Denmark and the Local Government Sector 2. Organization 3. Business 4. Funding 5. Appendix
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Import and Export – most important goods (2014)
Import
Export
12%
14%
10%
12% 10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
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Import and Export – main trading partners Exports, goods 25% 20% 15% 10% 5% 0%
Export, services
2007 2013
16% 14% 12% 10% 8% 6% 4% 2% 0%
2007 2013
Import, services
Import, goods 20% 15% 10% 5%
2007
0%
2013
16% 14% 12% 10% 8% 6% 4% 2% 0%
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2007 2013
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Income Taxes in Denmark (2013) The Local Governments can set the local tax rate freely Average tax rate (2013): 24.9% Ranging from 22.5% to 27.8%
Income taxes in Denmark
Rate
Central government taxes
19.83%
Local Government tax (average)
24.90%
”Top” tax
15.00%
Church tax (optional) Total tax rate
0.88% 60.61%
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Total Taxes 2013 600
500
DKK bn
400
300
200
100
0 VAT etc.
Property
Cars etc.
Personal income Corporate tax tax
Social security
Source: Statistics Denmark
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Central Government budget 2015
Revenues 2015 (DKK 661,9bn)
Expenditures 2015 (DKK 706,9bn)
Taxes on personal income 42%
Income transfers 36%
VAT 29%
Grants to local governments 28%
Taxes 20%
Defence, education etc. 27%
Corporate taxes 8%
Other expenditures 7%
Other income 0,4%
Investments 2%
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Key Financial Figures
EUR m
2014
2013
2012
2011
2010
Total gross lending
3,953
4,061
4,807
3,458
4,671
33
37
69
69
55
20,432
19,129
18,269
17,288
16,773
839
804
766
697
628
27,059
24,696
24,380
23,740
22,278
Profit after tax Lending Equity Total assets (Exchange rate: EUR/DKK 7.4604)
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Ratings KommuneKredit
Moody’s
Standard & Poor’s
Short-term
P-1
A-1+
Long-term in DKK
Aaa
AAA
Long-term in foreign currency
Aaa
AAA
Stable
Stable
Short-term
P-1
A-1+
Long-term in DKK
Aaa
AAA
Long-term in foreign currency
Aaa
AAA
Stable
Stable
Outlook
Kingdom of Denmark
Outlook
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Peer Group KommuneKredit Denmark
NWB The Netherlands
BNG The Netherlands
KBN Norway
Kommuninvest Sweden
Municipality Finance Finland
Benchmark currency
EUR/USD
EUR
EUR
USD
USD
USD
Rating
AAA/Aaa
AAA/Aaa
AAA/Aaa
AAA/Aaa
AAA/Aaa
AA+ /Aaa
Ownership
Membership by 100% Danish Local Governments
8% Central Government, 91% water-boards, 1% provinces
50% Dutch Central Government, 50% Local Government
100% Central Government
100% Swedish Local Government
30,66% Local Government Pension Institution, 16% Republic of Finland, 53,34% Finnish Local Government
Guarantee
Direct, joint and several guarantee from members (Danish Local Governments)
Local and Central Government owned company
Local and Central Government owned company
Government owned company
Jointly and severally guaranteed by members (Swedish Local Governments)
Guaranteed thorough Municipal Guarantee Board (jointly guaranteed by Finnish Local Governments)
Risk weighting
0%
20%
20%
20%
0%
0%
Purpose
Danish public sector lending only
Public sector lending and Dutch water control boards
Dutch public and semi-public sector lending
Norwegian public sector lending only
Swedish public sector lending only
Finnish public sector lending only
Profit orientation
Non-profit
Profit maximising
Non-profit
Slight profit maximising
Non-profit
Slight profit maximising
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More information Annual reports, rating reports, funding programmes etc can be found on web.kommunekredit.dk
Contacts Eske Hansen Senior Vice President, Head of Funding & Treasury
Lasse Vest Vice President, Funding
Trine Thomsen Vice President, Funding
Louise Rosentoft Vice President, Funding
Phone +45 33 69 76 07
[email protected]
Phone +45 33 69 76 70
[email protected]
Phone +45 33 69 76 83
[email protected]
Phone +45 33 69 76 81
[email protected]
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Disclaimer
This presentation has been prepared by KommuneKredit for investors generally and has not been prepared primarily for investors in any specific jurisdiction. Any information contained herein is neither an offer nor a solicitation of an offer to buy or sell securities. Any such offer is made only by the prospectus related to such securities. This document is subject to amendment and completion and should not be relied upon for the purpose of investment decisions.
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