fijando los fundamentos para el crecimiento sostenible-(ingles)) investors presentation_september...
TRANSCRIPT
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Setting the Foundations for Sustainable Growth
September 2013
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Table of Contents
1. Overview
2. Sustainability of Public Finances and Reform of the Public Sector
3. Thorough and Transparent Reform of the Banking Sector
4. Far Reaching Structural Reforms
5. Results in the Private Sector: Rebalancing of the Economy
Appendix: Funding and Debt Management Policies
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Overview
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Addressing the Imbalances of Spains Economy
Lower funding costs and broader investor base in sovereign debt market. Strong commitment to
continuing structural reforms
2
4
Commitment with the sustainability of public finances
Clean up and recapitalization of banks leading to a strong financial system
Structural reforms to boost competitiveness and productivity
Structural fiscal adjustment of c.3.1% in 2012 according to IMF
All levels of public administration accounts are becoming sustainable
Deficit / GDP in 2012 (y-o-y change): central government 4.11% (1pp), regions: 1.76% (1.6pp),
local entities: 0.15% (0.3pp)
Three pillars of Spains economic policy
Increased coverage ratios to real estate and construction
Banks exposure to real estate sector down by almost 50% in 2012
More transparent and better equipped banks to finance real economy
Enhanced transparency framework and strengthened financial supervision
Labour market reform is behind the decline in unit labour costs Since 2009, Spains ULC have declined by 7% vs Eurozone up by 3%
In the past 6 months, registered unemployment has decreased by 341,000 (down by 6.8%)
Orderly private sector deleveraging: -26pp of GDP (from 231% in June 2010 to 205% in Q1 2013)
Trade balance surplus with the Eurozone and strong export performance: exports of goods +8% y-o-y in H1
2013. In H1 2012 they increased by 1.2%
1
3
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Spains Economy is Enduring a Significant Adjustment
5
Public sector deficit contracted by 2 percentage points and private sector continued its
deleveraging process
___________________________Source: MINHAP, Banco de Espaa, Spanish Customs, Ministerio de Fomento, Eurostat, INE.
2011 2012CHANGE
12/11
PUBLIC
SECTORPublic Deficit, excl. financial sector one-offs (% GDP) 8,96% 6,98% -1,98 p.p.
LABOUR
MARKET
Wage increase agreed in collective wage agreements (y-o-y change) 2,7% 1,7% -36,9%
Unit labour costs. Total economy (y-o-y growth) -1,5% -3,4% -1,9 p.p.
Productivity per employee. (y-o-y growth) 2,2% 3,2% 1,0 p.p.
Total labour cost (y-o-y growth) 1,2% -0,6% -1,8 p.p.
EXTERNAL
SECTOR
Current account balance (% GDP) -3,5% -1,1% 2,4 p.p.
Net Lending(+)/Borrowing(-) vs RoW (% GDP) -3,0% -0,6% 2,4 p.p.
Net International Investment Position (% GDP) -91,7% -91,9% -0,2 p.p.
Exports of goods (y-o-y growth) 15,6% 4,2% -11,4 p.p.
Trade balance ( mn) -42.331 -25.800 16.532
Share of exports to Euro Area 53% 49% -3,3 p.p.
Share of exports to non Euro Area 47% 51% + 4 pp
Trade balance with Eurozone ( bn) 1.636 7.777 6.141
FINANCIAL
SECTOR
Provisions; Impairment losses on assets ( mn) (Dec. 2012) 125.258 191.566 66.308Net equity, adjustments and provisions ( mn) (Dec. 2012) 363.348 405.173 41.825
Provision coverage over credits (Dec. 2012) 7,0% 11,9% 4,9 p.p.
PRIVATE
SECTOR
DEBT
Gross debt. Non financial corporates and households (% GDP) 221,0% 210,5% -10,5 p.p.
Gross debt. Non financial corporates (% GDP) 138,8% 130,7% -8,1 p.p.
Gross debt. Households. (% GDP) 82,2% 79,8% -2,4 p.p.
HOUSING Price of Housing per sq m (y-o-y growth) 1.702 1.531 -10,0%
Control of public finances
Wage moderation and
productivity
Competitiveness,
Product and geographical
diversification
Sounder and moresolvent financial
system
Deleveraging via
debt reduction
Adjustment in
housing market
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Spains adjustment in an international context
6
Spain Euro Area USA UK Japan
(% yoy change) 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013
GDP growth -1.6 -1.3 -0.6 -0.4 2.2 1.9 0.3 0.6 2.0 1.4
HICP 2.4 1.5 2.5 1.6 2.1 1.8 2.8 2.8 0.0 0.2
Unit Labour
Costs-3.4 -0.6 1.4 1.4 0.9 0.6 3.2 2.5 -1.5 -1.1
Public Deficit
(% GDP)-7.0 -6.5 -3.7 -2.9 -8.9 -6.9 -6.3 -6.8 -9.9 -9.5
General Govt
Gross Debt
(% GDP)
84.2 91.3 92.7 95.5 106.5 108.1 90.0 95.5 237.9 245.4
Exports of Goodsand Services 3.1 4.1 2.7 2.2 3.5 3.5 -0.2 1.3 -0.3 4.0
Current Account
(% of GDP)-0.9 1.6 1.8 2.5 -3.0 -2.8 -3.7 -2.7 1.1 1.8
___________________________Source: Spains Stability Programme Update April 2013, European Commission, Spring Forecasts 2013 and IMF Fiscal MonitorApril 2013
Despite the recent turbulences, the Euro Area displays strong macroeconomic
indicators
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Remaining challenges at the EU-level
Despite theadvances in theinstitutional setup of the Euroarea,fragmentationpersists andthere are
asymmetries inSME access tocredit
GenuineEuropean
banking union
Lending rates of new loans to Non-Financial corporations(Maturity up to a year, less than 1 million)
A credible commitment towards a robust and complete Monetary Union is required
1
2
3
Single Supervisory Mechanism
Single Resolution Mechanism
Common Deposit Guarantee Scheme
7
0
1
2
34
5
6
7
8
9
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Germany
Spain
France
Ireland
Italy
Portugal
2013
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Sustainability of Public Finances and Reform of the Public Sector
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Structural fiscal consolidation efforts to remain in an adverse international economic
environment
Commitment to continue with the Fiscal ConsolidationEfforts
Spains 2012 deficit was 6.98% of GDP excluding one-off support to the f inancial sector. In structural terms and according to
the IMF, Spains fiscal effort was 3.1% of GDP; the highest amongst large developed economies
The adjustment path to bring the public deficit below 3% has been extended by 2 years. However this does not imply a fiscal
relaxation at all: the structural effort will remain substantial
Plus, any unexpected growth surprise over and beyond the forecast scenario will be principally directed towards public
deficit reduction
___________________________1. Ministry of Economy and Competitiveness.
The fiscal path for the public administrations (excl. one-offs)
9
Forecast
(% of GDP) 2012 2013 2014 2015 2016
Central Government -4,1 -3,8 -3,7 -2,9 -2,1
Autonomous Regions -1,8 -1,3 -1,0 -0,7 -0,2
Local Governments -0,2 0,0 0,0 0,0 0,0
Social Security Administrations -1,0 -1,4 -1,1 -0,6 -0,5
General Government -7,0 -6,5 -5,8 -4,2 -2,8
-12
-10
-8
-6
-4
-2
0
2012 2013 2014 2015 2016
Deficit Structural balance Cyclical balance
Breakdown of Public Balance (% GDP)
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Spains structural fiscal efforts guarantee thesustainability of public finances
10
IMF Projections of Change in Cyclically Adjusted Primary
Balances
___________________________Source: IMF and European Commission (Spring forecasts, 2013)
-2,00
-1,00
0,00
1,00
2,00
3,00
4,00
5,00
Australia
Canada
France
Germany
Italy
Japan
Korea
Spain
UK
US
EU
2013 2012
Evolution of debt/GDP ratios of selected countries
30,0
50,0
70,0
90,0
110,0
130,0
150,0
2008 2009 2010 2011 2012 2013 2014
Belgium Germany SpainFrance Italy UK
Euro area
Change in cyclically adjusted primary balance 4.5% of GDP
in 2012 and 2013. The largest among G20 economies
Spains debt/GDP ratio is sustainable. It is expected to
increase to levels around the Eurozone average
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A new institutional and regulatory framework for allpublic administrations
Fiscal discipline at all levels of the administration
Early-warning system, enforcement and
sanction procedures
Transparency: monthly and quarterly reporting on budget
execution. Submission of budgetary guidelines previous to
the approval of regional budgets
Assurance of compliance: coercive measures andenforced compliance
Law for transparency in the public administrations:
accountability & governance
Budgetary and Financial Stability Law &
Enhanced Transparency
Fund for the Financing of Payments to Suppliers (FFPP):
Provides a financing vehicle to regional and local
governments for the regularisation of arrears
o Outstanding commercial debt owed to suppliers
Forcing fiscal adjustment at regional and local level.
Subject to conditionality
Disbursed amounts:
Local Administrations:9.3bn Regional Administrations:17.5bn
and a1.2bn increase in 2013
Regional Liquidity Mechanism (FLA):
9 of the 17 regions have adhered to the FLA
2012:16.6bn
2013:23.0bn (already computed in debt/GDP ratio)
Liquidity & Financing to Regions and Local Governments
11
Regional governments posted a deficit of 1.76% of GDP in 2012. This represents a modest deviation from the deficit target of 1.5% of
GDP. But it is 1.6pp less than last years deficit thanks primarily to cuts in expenditures
The structural fiscal framework has been strengthened through:
The approval of the Budgetary and Financial Stability Law
The creation of two funds to ensure adequate funding of local and regional governments
In 2012, all 17 regions managed to reduce their deficits by an average of 1.6% of GDP
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A Thorough and Transparent Reform of the Banking Sector
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Introduces a state-of-the-art recovery and resolution system for banks, which has already
been tested Early intervention for banks in mild difficulties
Restructuring measures for institutions with temporary troubles that can be solved with
public support
Orderly resolution for non-viable institutions
Early introduction of provisions foreseen in the future European Directive on Bank Recovery
and Resolution currently under negotiation at the EU level
Banking Sector Reform: A Transparent andComprehensive Exercise
New framework forBank Restructuring
and Resolution
13
Cleaning-up of balance sheets through increased provisioning requirements.
The impact on profits and reserves of increased coverage requirements on exposures related to real estate developershas been of78bn.
Identification of individual bank capital needs through evaluations from the IMF and independent external evaluators.
70% of the Spanish financial sector is sound and didnt require additional capital.
Capital needs concentrated on the 4 banks owned by the FROB (BFA-Bankia, Catalunya Bank, NCG Banco, Banco
Valencia), which account for 18% of the system.
Recapitalisation, restructuring and/or orderly resolution of the troubled banks.
Total public support for the f inancial sector has been41.3bn; less than 4% of GDP.
Segregation of real estate problem assets and their transfer to an external Asset Management Company (SAREB).
SAREB, with majority of private capital (55%), has received50.5bn of foreclosed assets and risks linked to developers.
Regulatory reform focused on resolution, savings banks, enhanced transparency and minimum capital requirement for all
banks.
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According to the European Commission and the IMFs progress reports, the reform
remains on track despite the ambitious deadlines
Spains Financial Sector Reform remains on Track
14
EUROPEAN COMMISSION
Brussels, 3 June 2013
On the basis of the review, it can be concluded that the programme remains on track
Spanish financial markets have further stabilised since the last review, with sovereign and corporate bond yields dropping amidst
lower volatility. In parallel, the liquidity situation of the Spanish banking sector has further improved. This allowed Spanish banks to
further regain access to funding markets and to reduce reliance on central bank financing. Also, the solvency position of Spanish
banks has been bolstered after the recapitalisation of parts of the banking sector and the transfer of assets to SAREB (the
Spanish asset management company), and solvency rates are above regulatory requirements
The process of bank restructuring is well underwayFurther important steps have been taken since the last review in separating impaired assets from banks, as the foreseen transfers
of assets to SAREB have now been completed and SAREB has become fully operational
Progress has also continued with respect to horizontal financial-sector conditionality. Thereby, compliance with the requirements
in the Memorandum of Understanding is nearly complete and achievements toward strengthening the governance, regulatory
and supervisory framework of the Spanish banking sector have been made
Recent government initiatives aimed at strengthening non-bank financial intermediation are welcome, including capital market
funding and venture capital non-bank financing...
The solvency position of Spanish banks has been bolstered after the recapitalisation of parts of the banking sector and the transferof assets to Sareb
There is at present no reason to foresee further programme disbursements (Third review of the programme)
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Segregation and transfer to an Asset Management Company of troubled assets from
banks that have received public support
Asset Management Company: SAREB
28 equity holders, of which 27 are private investors and
include domestic and foreign banks and
insurance companies
The only public shareholder is FROB, with a 45% stake
Equity:4.8bn (25% share capital / 75% subordinated
debt)
Business Plan with a 15 year horizon
Expected RoE of approx. 1314% under conservative
assumptions.
Transferred assets:50.5bn, for a gross book value of
106.6bn Overall average discount close to 52%
A total of around 200.000 assets have been transferred:
Foreclosed RE assets 107.000 assets for a value
11.3bn
Loans to RE developers 90.500 assets for a value
of39.4bn
Assets Liabilities
Transfer of assets from
Group 1 and Group 2
banks completed:
Foreclosed RE assets
with net accounting value
250.000 of net
accounting value
Equity approx. 8% of
total assets
Majority holding by
private investors (55%)
Sources of funding:
1. State-guaranteed senior
debt issued in exchange
of assets received
2. Subordinated debt and
common equity
TOTAL ASSETS 55.5bn
15
SAREBs activity
Nearly1bn of cash collections coming from the on-going activities by month-end July 2013
Wholesale disposals and activityare picking up
9th August: disposal of245m of loans to Colonial 6th August: Bull project: Sareb creates an SPV with an institutional investor to sell together a portfolio valued
at100m consisting of 939 homes and annexes and a commercial real estate asset 30th May: Sareb sold its interest of35m in a syndicated loan to Metrovacesa
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Enhanced Transparency in Refinancing Requirements
Spain is leading the field in best practice transparency frameworks and is well ahead its European partners
Disclosure requirements have been enhanced and
harmonised for all entities on key areas of their portfolios
such as restructured and refinanced loans, NPLs, asset
quality across asset classes, sectorial concentration and etc.
In 2012, restructured and refinanced operations amount to
208bn, equivalent to around 13% of the total loan portfolio
c58% of the refinanced portfolio considered doubtful or
substandard, and hence already provisioned
The remaining 40% of the portfolio are performing loans
33% of the refinanced portfolio is related to real estate
developers and construction. These exposures were
significantly provisioned in 2012
The Oliver Wyman stress test already took refinanced and
restructured loans into account:
It specifically considered refinanced loans: the default
rates of non-doubtful refinanced exposures were adjusted
. This increased the estimated capital needs These assumptions were more conservative than current
developments, as actual figures and data prove
16
88,3
42,9
77,0
0,0
50,0
100,0
150,0
200,0
250,0
bn
Performing Substandard Doubtful
Restructured and refinanced loans in 2012
7,9
31,3
0,0
10,0
20,0
30,0
40,0
50,0
bn
Provisions for restructured and refinanced loans
Bank of Spain has homogenised the classification criteria of restructured and refinanced loans across banks to
ensure adequate provisioning
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Sharp reduction in number of branches and number of employees in the financial sector
A significant Capacity Adjustment has already occurred
The Spanish financial sector has wound down most of
the excess capacity built up during the housing boom
-13% in employees and -17% in number of
branches from the peak in 2008
The recapitalisation exercise entails further
downsizing, with marked increases on the efficiency
ratios of the sector
The total number of entities has decreased from 50 in
2009 to 12 in 2012 (excluding credit cooperatives and
foreign branches)
Sizeable reduction in the former saving banks
model: from 45 to 7 entities that have been
transformed into banks
Legislation to improve, strengthen and clarify the
governance structure of former savings banks and ofcommercial banks controlled by them
Adjustment in Deposit Taking Institutions: No. of Employees and Branches
___________________________Source: Bank of Spain.
Employees Branches
17
37.000
39.000
41.000
43.000
45.000
235.000
245.000
255.000
265.000
275.000
2000 2002 2004 2006 2008 2010 2012
Employees Branches
2013
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Far Reaching Structural Reforms
18
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An ambitious reforms agenda
19
2012
Labour Market
Reform
Other Structural
Reforms
Fostering wage moderation and facilitating job creation
with lower GDP growth rates
Eliminating dualities and rigidities in the labour market
Moving beyond the model of indexation of salariesand wages
Addressing high youth unemployment levels
Has avoided 225,800 job losses during its first year of
application
Retail sector: liberalization of opening hours and
elimination of restrictions on sale activities Liberalization of the Housing rental market
Health and Education. Streamlining and cost reduction in
order to increase efficiency
The 2012 set of reforms aimed at increasing the Flexibility and Competitiveness of the
Economy
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A labour market reform to foster wage moderation andjob creation
Firm-level wage bargaining prevails over national, regional or sector agreements
Collective dismissals without administrative authorization are allowed for firms posting falling profits for
three or more consecutive quarters
Convergence of dismissals costs with the EU average
Unjustified dismissal: severance pay of 33 days per year worked up to 24 months
Justified dismissal: severance pay of 20 days per year, up to 12 months
Clarification of objective causes for justified dismissals
Creation of a new permanent contract directed at SMEs
Summary of measures adopted
20
The latest Labour Force Survey of Q2 2013 indicates that:
Employment increased by 149,000 in Q2 2013, even beyond seasonally adjusted
terms, in stark contrast to the 15,900 jobs shed in Q2 2012.
Unemployment fell by 225,000. The second largest quarterly decrease since
records are kept.
Total registered unemployment has decreased in the last 6 months by 341,000, down by
6.8%.
Social Security affiliation (registered employment) has increased in the last 6 months by
267,000 to 16.3 million.
Against an
adverse cyclical
position, the
latest
employment
data signals a
change in
labour market
dynamics
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Impact of the labour market reform: July assessment
The increase in unemployment has moderated since the reform was approved
The y-o-y rate of increase in unemployed workers has dropped to 5% in Q2-13 from 18% in Q2-12, despite the moresevere cyclical context
For the first time since the onset of the crisis, weaker growth has not led to a faster pace of job destruction in the private
sector
Self-employment has progressed more favourably in the last 9 quarters, especially since the reform was approved
More jobs would have been lost without the labour market reform. The reform would have helped prevent the destruction of
almost 226,000 jobs in the year before its implementation
After this reform, the Spanish economy will create employment with GDP growth rates of around 1%-1.2%, according to the
Ministry of Economys own estimates. Significantly below the figure before the reform, which was above 2%.
The reform is already having a positive impact on Spains labour market
21
Year-on-year change in unemployment Change in registered self-employed workers (H1 of each year)
-84.367
-14.045
6.4131.153
22.985
-100.000
-80.000
-60.000
-40.000
-20.000
0
20.000
40.000
2009 2010 2011 2012 2013
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
80,0%
90,0%
2Q-13
1Q-13
4Q-12
3Q-12
2Q-12
1Q-12
4Q-11
3Q-11
2Q-11
1Q-11
4Q-10
3Q-10
2Q-10
1Q-10
4Q-09
3Q-09
2Q-09
1Q-09
4Q-08
3Q-08
2Q-08
1Q-08
17.8%
5%
___________________________Source: INE and Ministry of Employment and Social Security
000s workers
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Increased Competitiveness and Declining LabourCosts
Total labour costs in 2012 dropped by 0.6%,
compared to the 1.2% increase registered in2011. So far in 2013 they have fallen by 1.4%
Wage costs, which had been moderating since
the labour market reform was implemented, fell
by 1.8% in Q1 2013
This has had a positive effect on unit labour
costs which have been on a downward trend
since 2009
The declining unit labour costs are boosting
competitiveness
Unit labour costs have decreased by 3.0% in
2012. So far in 2013 they are falling by 2.6%
y-o-y
There are signs of less segmentation due to
the fall of dismissal costs
On average, dismissal costs have
decreased almost 13% in 2012 compared to
2011
Unit Labour Costs & Productivity and Labour Costs
__________________________Source: Eurostat; Ministry of Economy and Competitiveness.
Index 2008 = 100 y-o-y change
22
Evolution of ULCs in the largest European economies
Index 2005 = 100
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
90
95
100
105
110
115
2008 2009 2010 2011 2012 2013
Unit Labour Cost (Left Axis) Labour Productivity (Left Axis)
Labour Costs (Right Axis)
95
100
105
110
115
120
125
130
2005 2006 2007 2008 2009 2010 2011 2012 2013
UK Spain GER FR IT
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The Reform Programme goes on
23
2013National Reforms
Programme
Measures to Improve
the Financing
of the Economy
Fight Against
Unemployment
Reforms in
Internal Markets
&
Enhanced
Business
Framework
Modernisation and
Rationalisation
of the Public Sector
The National Reforms Programme details the Structural Reform road-map and aims to
increase the flexibility and competitiveness of the Spanish economy
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Modernization and Rationalizationof the Public Sector
24
Law of Transparency, Access to Public Information and Good Governance of all Public Administrations
Creation of the Independent Authority of Fiscal Responsibility which shall ensure the compliance of the
principle of Budgetary Stability at every level of the Administration.
To be set-up before the preparation of the 2014 budget
Improved governance practices
The basic parameters of the Social Security system will be reviewed, in light of the evolution in life
expectancy and other demographic and economic factors. New regulation to be approved throughout 2013
These measures are complemented by those that have already been approved in terms of transparency in
budgetary execution and with the measures to be adopted to fight arrears and late payments of Public
Administrations
Social Security measures: legal regulation of the sustainability factor
The Law will focus on the structure of the local administration, targeting fiscal balance, greater efficiencyand the professionalization of the political and administrative functions. Four main objectives:
To clarify local responsibilities in order to avoid duplicities and overlaps,
To rationalize the organizational structure,
To ensure financial and fiscal discipline, and
To promote a business friendly regulation
Draft Law on the rationalization and sustainability of the local administrations
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Measures to improve the financingof the economy
25
Incubator Seed Capital Start-up Expansion Maturity
Business
Angels
Network
CDTI
National
Incubator
Network
Enisa
Fondo
Isabel la
CatlicaSpain StartUp
Coinvestment
Fund
FOND ICO
Global
ICO/Axis
Sepides
Cofides
Other Capital
Markets
MARF
MAB
Risk
Development
New
Existing
A number of measures have been launched to mitigate the effects of credit restriction and to increase the
range and flexibility of the financing sources available to companies, with particular attention to
companies in internationalisation stages and SMEs
Main measures:
Securities markets: launching an alternative fixed
income market (MARF), decreasing administrative
burdens in security issuances, facilitating the
movement between alternative (MAB) and
organized stock markets Venture capital: reform of the Law of Venture
Capital entities, launching of FOND-ICO Global
and the National Network of Business Incubators,
reinforcement of business angels
Modification of the Insolvency Law.
Banking Channel: ICO lines ( 22 bn), commitment
by banks to increase SME financing by 10 bn in
2013 Loan Guarantees: reinforcement of the mutual
guarantee system, CESCE line, ICO-CAF facility
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Fight against unemployment
26
Plan of Employment Policies 2013 (Q2)
Pluri-annual Strategy for Employment Activation 2014-2016
(Q4 2013)
Implementation Strategy of the dual vocational training
system (2013-2015)
Entrepreneurship and Youth Employment Strategy
2013-2016
Reform of certificates of professional competence
New management system of unemployment benefits
Creation of a Single Gateway for Employment and
improvement of public-private partnerships
Reform of active labour
market and improvement of
the employability and skills of
the unemployed
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Reforms in Internal Markets and EnhancedBusiness Framework
27
Supports a favorable environment for entrepreneurs and the development and internationalization of
companies (Draft Law 24th May 2013)
Entrepreneur of limited liability
Less red tape: setting up of limited liability companies without public deeds in 24 hours and reduced
bureaucratic procedures through Access Points for the Entrepreneur
Fostering second chances: out-of-court resolution mechanisms
Fiscal support for entrepreneurs: Cash VAT
New tax deductions: profit reinvestments, R&D+I, etc.
Measures to improve entrepreneurship financing :
Fewer constraints to issue in the Alternative Fixed Income Market (MARF)
More flexible conditions for refinancing agreements
New financing instruments for the internationalization of companies Measures to spur entrepreneurial growth: elimination of binding municipal licenses and fewer obstacles for
public tender participation
Measures to foster the internationalization of the Spanish economy: fixed income instruments for
internationalization, privatization of CESCE (Spains export-credit insurance agency), and trade finance
facilities
Law on Entrepreneurship and its Internationalization
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Reforms in Internal Markets and EnhancedBusiness Framework (continued)
28
To remove unnecessary barriers to professional access and exercise, and to boost competitiveness. Toreduce the number of regulated professions. Draft law approved on 2nd August
Law on Professional Services and Professional Organizations
Law on Des-indexation of the Spanish Economy
To foster competitiveness by promoting indexation mechanisms other than the automatic indexation tothe general CPI (January 2014)
Reform of the Energy Sector
To achieve the long term sustainability ofSpains power system by anticipating economic, technological
and demand changes, as well as increasing competition and the security of the supply
Measures to achieve a balance between revenues and costs of the electricity system
To improve Spains framework of corporate governance according to the highest international standards
New Code of Corporate Governance
A new visa regime for non-residents to attract investments
Reactivation of the Residential Housing Market
A new regulatory model based on the principles of free establishment and free movement of goods and
services throughout the Spanish territory. Draft Law already approved
Law on Market Unity Guarantee
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Results in the Private Sector: Rebalancing of the Economy
29
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Resources redeployed away from construction and real estate and into healthier sectors
The Private Sector is Deleveraging at a Fast Pace
Total private sector gross debt has fallen from 231% of GDP in June 2010 to less than 205% of GDP in Q12013
Both household debt and nonfinancial companies debt is significantly falling
Households debt is in line with EU average, 80% of GDP
The indebtedness of the construction and real estate companies explains most of the difference in the
leverage ratios vs. other economies
Indebtedness Ratios of Households Indebtedness Ratios of Non-Financial Corporations
___________________________Source: Bank of Spain.
30
Max (Q2-10): 141%Spain excl. construction
and RRE
Q4-12:
130.5%
60,0
70,0
80,0
90,0
100,0
110,0
120,0
130,0
140,0
150,0
2005 2006 2007 2008 2009 2010 2011 2012
Spain Euro Area UK USA
Max: 87.3%Q2-10
Q4-1279.7%
50,0
60,0
70,0
80,0
90,0
100,0
110,0
2005 2006 2007 2008 2009 2010 2011 2012
Spain Euro Area UK USA
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Real estate prices have already fallen by c. 30% from their peak
The Real Estate Sector has Accelerated its Adjustment
The largest annual decrease so far occurred in 2012 with a correction in prices of nearly 10%
On average, nominal house prices are at 2004 levels; adjustment more intense around most populated
and coastal provinces
Relative stabilisation in house transactions, more intense in Mediterranean provinces
Housing prices decliningNominal housing price adjustment in Spain
since peak in each province (%)
___________________________Source: Ministerio de Fomento.
Q4 2011 Q4 2012
>-30 -30 -25 -20 -15 -10 -5 0
31
-29%
800
1.000
1.200
1.400
1.600
1.800
2.000
2.200
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Wage moderation has resulted in a competitiveness based expansion of exports
Rapid Expansion of the External Sector
Despite the global economic slowdown, in H1 2013, exports of goods have increased by 8% in real terms (well
above last years increase during the same period; 1.2%)
Exports of non-tourist services, mainly due to professional services and services to firms, have outpaced exports
of goods and tourist services
___________________________Source: Eurostat; Instituto Nacional de Estadstica.
Exports of Goods and Services Breakdown of Exports of Goods and Services
Index, 2005=100 Index, 2005=100
32
80
90
100
110
120
130
140
150
160
170
Germany Spain France
Italy UK Ireland
80
90100
110
120
130
140
150
160
170
180
190
2005 2006 2007 2008 2009 2010 2011 2012 2013
Goods Non-tourist services Tourist services
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Spain will have a surplus in its current account by year-end 2013
External Imbalances are being Corrected
From 2007 to 2012 the adjustment in the current account has been of 9% of GDP
The Current Account is in surplus since H2-2012
This will enable Spain to decrease its net external indebtedness
The correction in the current account is of a structural nature and is due to competiveness gains stemming from an internal
devaluation. The adjustment is more sustainable than the one achieved by exchange rate devaluations in the 90s
Product diversification and product quality have resulted in a higher resilience of exports to the economic cycle
Geographical diversification of goods exports: exports to non-EU economies account for more than 40%
Product diversification: the range of exports has increased particularly in higher value added goods and services
___________________________Source: Bank of Spain. European Commission
Current Account Balance and its Adjustment Current Account Balance & Trade Balance (goods)
Cumulative Adjustment (in % of GDP) % of GDP
33
-12,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
Current account balance Trade Balance (goods)
Forecast for 2013/14
0
2
4
6
8
10
12
0 1 2 3 4 5 6
CA '07: 10%
CA '91: 3.6%
CA'97: -0.1%
CA '13 (F): +1.3%
years since maximum current account (CA) deficit
1992: 1st and 2nd devaluations of the Peseta
1993: 3rd devaluation
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The correction in the current account is of a structuralnature
While the 2009 correction in Spains current account was due to a decrease in imports and in internal demand, the
correction in 2012 and 2013 is mainly due to strong export performance
Spains exports now represent around 33% of GDP and the performance is amongst the best in the EU
___________________________Source: Ministry of Economy and Competitiveness, Eurostat
Spain: Evolution of Exports, Imports and National Demand
34
80
85
90
95
100
105
110
115
120
2007 2008 2009 2010 2011 2012
Exports (goods) Imports (goods) National demand
Index, 2008 = 100
Exports of goods and services in select countries
% GDP
20,0
22,0
24,0
26,0
28,0
30,0
32,0
34,0
36,0
2006 2007 2008 2009 2010 2011 2012 2013 (F) 2014 (F)
Spain France Italy United Kingdom
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Appendix: Funding and Debt Management
35
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Spain has demonstrated financial flexibility andresilience during the crisis
Despite volatility in European public debt markets, the Treasury is financing itself adequately. Average cost atissuance and average cost of debt outstanding have remained subdued
Average life of the debt portfolio has declined in the last year, mitigated by the ESM loan
(12.5 years average life) but at 6.3 years its remains longer than rating peers
Cost of Debt Outstanding and Cost at Issuance
(*As of 30th June, in %)
Average Life
(*As of 30th June, in years)
___________________________Source: General Secretariat of the Treasury and Financial Policy.
36
3,893,80
3,01 2,66
2,02,5
3,0
3,5
4,0
4,5
5,0
5,5
6,0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
Average cost of Debt outstanding Average cost at issuance
6,35 6,29
4,0
4,5
5,0
5,5
6,0
6,5
7,0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
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Comfortably on track of 2013s funding programme
Year to date, the Spanish Treasury has funded92.8bn (77%) of the maximum expected amount of medium- andlong-term gross issuance of121.3bn
Including T-Bills, the Spanish Treasury has issued165.8bn so far in 2013, around 72% of the overall programme
for the year
___________________________Source: General Secretariat of the Treasury and Financial Policy.
Funding Programme. 2013 (Gross issuance, in bi l l ion Euros , as of 27thAug ust 2013)
37
215bn-230bn
0
50
100
150
200
250
Total Medium & long term Letras
Projected Executed
77%
72%
106.3bn- 121.3bn
Variable throughout
the year
6%
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Non-resident demand of Spains bonds is picking up
In contrast to the sharp decrease in registered holdings of bonds in the first half of last year, non-resident demand
has picked up in recent months (+48.5bn vs. August 2012; gross term Investment at similar levels than in April
2011)
Change in Holdings of Non-Resident Investors
(Term Investment. bn)
Non-Resident Holdings of Unstripped Government Debt
(As a % of total)
___________________________Source: General Secretariat of the Treasury and Financial Policy .* As of May 31st 2013.
May -13
37%
Apr-13
35%
38
-40000
-20000
0
20000
40000
60000
80000
100000
120000
140000
2008 2009 2010 2011 2012 2013
Credit Institutions Other Fis
Public Administrations Pension, Insurance, Mutual
Households and non-financials Non-Resident
25%
30%
35%
40%
45%
50%
55%
60%
2011 2012 2013
Term investment Registered holdings
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A Prudent Debt Management Strategy
Redemption dates of medium- and long-term bonds (principal and coupons) match the biggest inflows oftax revenues
Excess liquidity is lent in the money market each month through repo auctions
Liquidity lines with banks provide an additional buffer
Maturity Structure of Medium- and
Long-Term Bonds (In billion Euros)Administrative Distribution of Tax Collection
___________________________Source: General Secretariat of the Treasury and Financial Policy .
0
24
6
8
10
12
14
16
18
20
22
24
26
28
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Letras Bonos
Obligaciones Foreign Currency & Other
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Personal Income Tax
Corporate Income Tax
VAT
Excise and duties
Degree of concentration of tax collection
- +
39
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Risk and Refinancing Measures
Redemptions of Euro-denominated debt remain well in line with those of peers
Maturity Structure of Medium- and Long-Term Bonds
(In billion Euros)
Relative Redemptions
(% GDP 2012. July 2013 to June 2014)
0
10
20
30
40
50
60
70
80
90
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
305.562.6
298.5
137.2
217.0
___________________________Source: General Secretariat of the Treasury and Financial Policy .
___________________________Source: General Secretariat of the Treasury and Financial Policy for Spain, and Bloombergfor other countries.
40
19,8%
15,7%16,0%
14,1%
7,4%
0%
5%
10%
15%
20%
25%
Italy
Belgium
France
Spain
Germany
311.5
63 3
11
147
201
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15-year Bono:3.5bn, 5.15%, October 2028
41
Distribution by investor type
Distribution by regionFourth syndicated benchmark deal of the year
On the 9
th
July 2013, Spain successfully priced itsnew 15-year bond: 3.5bn size, 5.15% coupon,
Oct-2028 maturity
The issue is the Kingdom of Spains first 15-year
syndicated bond since March 2011.
The deal is the fourth syndicated transaction
of the year, following two 7bn 10-year
bonds in January and May and a USD2bn 5-
year in February
The new bond was officially announced on Monday8th July and priced on Tuesday afternoon
In just under two hours the orderbook for the
transaction grew to7.5bn
Over 130 investors participated in the transaction Demand from non-domestic investors
exceeded 54% of the orderbook
With this syndicated transaction, Spain completedover 70% of its medium- and long-term funding
programme for 2013
Key summary details
Amount: 3.5bn
Issue date: 9-July-2013
Maturity date: 31- Oct- 2028
Coupon: 5.15%
Re-offer spread vs. ms: +280bp
Re-offer yield: 5.194%
The deal further evidences that Spain has full market access to the long-end of the curve
Spain;
46%
EZ; 18%
UK;
18%
US;
14%
Nordics
; 2%
Switzerland; 2%
Banks;
24%
Asset
Mngrs;
22%
Private
Banks;
4%
Hedge
Funds;
13%
Insurance and
Pension Funds;
36%
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Contact details
For more information please contact:[email protected]
Phone: +34 91 5836043 - Fax:+34 91 5835396
Reuters: TESORO
Bloomberg: TESO
Internet: www.mineco.eswww.tesoro.es
For more information on recent developments:www.thespanisheconomy.com
42
mailto:[email protected]:[email protected]://www.mineco.es/http://www.tesoro.es/http://www.thespanisheconomy.com/http://www.thespanisheconomy.com/http://www.tesoro.es/http://www.mineco.es/mailto:[email protected]:[email protected]:[email protected]