province of ontario - ir presentation · 10 years april 27, 2016 april 27, 2026 1.00 billion 2.50%...
TRANSCRIPT
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May 2016
Investor Presentation
Ontario Financing Authority
http://www.ofina.on.ca
Ontario Financing Authority
www.ofina.on.ca
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Overview
• Ontario Bonds
Exceptional liquidity with a wide range of bond offerings
Attractive spreads provide opportunities for investors to achieve higher
returns
• Ontario’s Economic and Fiscal Summary
A diverse economy with a well-educated and highly skilled workforce,
generating almost 40 per cent of the national GDP
The government is on track to eliminate the deficit in 2017–18, while
continuing to make investments in priority areas to enhance public
services, support economic growth and a low-carbon economy, and
create jobs
Ontario is also projecting to remain balanced in 2018–19
Building on previous commitments, Ontario is investing about $160
billion in public infrastructure over 12 years, starting in 2014–15
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Ontario Bonds
• Bond Offerings
Wide range of offerings provide extensive investment and trading
opportunities across the yield curve
• Liquid
Strong liquidity in secondary markets and large benchmark issues
• Attractive Spreads
Ontario spreads give investors opportunities to enhance their returns
• Safe
Largest Canadian provincial economy by GDP and population
A diverse economy with direct taxation powers and stable growth
• Borrowing Program
Long-term borrowing for 2016–17 is forecast to be $24.4 billion, this would be the Province’s lowest borrowing program since 2007–08
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Domestic and International Borrowing
Note: Numbers may not add due to rounding.
Source: Ontario Financing Authority.
3
26.4
As of April 28, 2016
28.9
14.2 15.419.0
21.423.5
28.426.4
29.431.4
25.8
4.5 2.6
9.7
22.416.4 6.5 10.2
6.6
8.4
6.2
22.4
18.7 18.0
28.7
43.8
39.9
34.936.6 36.0
39.8
32.1
24.423.3
28.7
0
5
10
15
20
25
30
35
40
45
2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19
Canadian Dollar Foreign Currencies 2016–17 Borrowing Remaining Projected Total
Total Long-Term Borrowing
($ Billions)
Foreign 24% 14% 34% 51% 41% 19% 28% 18% 21% 19% 63% - -
Domestic 76% 86% 66% 49% 59% 81% 72% 82% 79% 81% 37% - -
Weighted-
Average Term14.6 12.1 8.6 8.1 12.8 13.0 12.4 13.6 14.1 14.2 10.1 - -
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Total Long-Term Public Borrowing Forecasts
Source: Ontario Financing Authority.
43.8
39.9
34.936.6 36.0
39.8
32.1
21.4
23.5
28.4
26.4
29.4
31.4
25.8
18.317.5
21.5
24.423.3
28.7
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19
Total Borrowing Completed Domestic Completed Domestic Forecast Current Forecast
3-Year Total:$76.4B
• At the peak of the financial crisis, the total long-term public borrowing from fiscal 2009–10 to
2011–12 totalled $118.6 billion compared to the current three year forecast of $76.4 billion
Long-Term Public Borrowing
($ Billions)
Actual Projected
3-Year Total:$118.6B
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Canadian Dollar Bonds$25.1
78.2%
U.S. Dollar Bonds$6.0 18.8%
Euro Bonds$0.1 <1%
Australian Dollar Bonds
$0.1 <1%
Green Bond Issue$0.7 2.3%
2015–16 Borrowing Completed: $32.1 Billion
5
Note: Numbers may not add due to rounding.
2015–16 Total Borrowing Requirement as per 2016 Budget: $30.1B
Preborrowing for 2016–17: $2.0B
Borrowing Completed: $32.1B
Domestic: 81%
International: 19%
Average Term: 14.2 years
As of March 31, 2016
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Domestic Borrowing Program
• Narrow Bid-Ask Spreads
• Large and diverse domestic underwriting syndicate of 12 dealers make active markets in Ontario bonds
• Ontario accounts for 14.5 per cent of the FTSE TMX Universe Bond Index, 20.1 per cent of the FTSE
TMX Mid Bond Index and 19.1 per cent of the FTSE TMX Long Bond Index1
• Ontario bonds accounted for 59.4 per cent of Canadian provincial bond trading in 20152
• Regular issuance of 5-year, 10-year and 30-year issues, which are re-opened to achieve benchmark
size
• Large Order Procedure set up to accommodate large investors
Canadian Dollar Benchmark Bonds
(As of April 28, 2016)
6
1 PC Bond, as of December 31, 2015.2 IIROC Market Trade Reporting System - Provincial Bond Total Trading.
Ontario Canada
5 yr (old) 2.10% September 8, 2019 $3.50B 1.75% September 1, 2019 $10.20B
5 yr (new) 4.20% June 2, 2020 $10.80B 0.75% September 1, 2020 $13.00B
10 yr (old) 2.60% June 2, 2025 $13.60B 2.25% June 1, 2025 $13.10B
10 yr (new) 2.40% June 2, 2026 $2.60B 1.50% June 1, 2026 $10.50B
Long (old) 3.45% June 2, 2045 $16.05B 4.00% June 1, 2041 $15.69B
Long (new) 2.90% December 2, 2046 $13.00B 3.50% December 1, 2045 $16.40B
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Canadian Domestic Bond Offerings over $1 Billion
Yield to Maturity
(Per Cent)
Types of Offerings
Syndicated bonds
Medium-term notes
Floating rate notes
Bond auctions
Real return bonds
Ontario Savings Bonds
Term
Note: As of April 28, 2016.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0 5 10 15 20 25 30 35
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• Fixed and floating rate Global Bonds in 3, 5, 7 and 10 years,
with benchmark size of C$1B plus
• Fixed and floating U.S. Medium-Term Notes (USMTN) in
2-10 years
• Total U.S. denominated bonds of about C$45B outstanding
as of March 31, 2016
• U.S. commercial paper (1-270 days), with about C$7.6B
outstanding as of April 28, 2016
• Global Bonds and USMTNs are offered in SEC-registered format
• Financial information filed by the Province is available to investors
electronically through the SEC’s EDGAR system
• Eligible Ontario bonds included in a number of bond market
indices and sub-indices including BofA Merrill Lynch, Citi and
Barclays Capital
• Notes issued under the Province’s U.S. Commercial Paper
Program are exempt from SEC registration under the U.S.
Securities Act
Sources: Bloomberg, Ontario Financing Authority.
U.S. Dollar Borrowing
MaturityIssue Details
Issue Date Maturity Date Amount (U.S.$) Coupon
10 years April 27, 2016 April 27, 2026 1.00 billion 2.50%
3 years January 21, 2016 January 18, 2019 2.50 billion 1.625%
5 years May 21, 2015 May 21, 2020 2.00 billion 1.875%
7 years September 11, 2014 September 10, 2021 2.00 billion 2.50%
Recently Issued U.S. Dollar Bonds
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Fixed & floating rate Global Bonds in 3, 5, 7
and 10 years
Fixed & floating U.S. Medium-Term Notes
(USMTN) in 2-10 years
U.S. Dollar Bond Offerings over $1 Billion
Term
Yield to Maturity
(Per Cent)
Types of Offerings
Note: As of April 28, 2016.
9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0 2 4 6 8 10 12
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Canada15%
United States46%
Europe14%
Asia Pacific14%
Middle East / Africa
3%
Other8%
• Core market with annual issuance since 1991
• Right-sized bond issues to meet demand
• U.S. dollar investors diversified both geographically and by type
USD by Geography1 USD by Investor Type1
1 Since 2010.
Source: Ontario Financing Authority.
Asset Managers
28%
Central Banks14%
Banks / Trust
Companies24%
Insurance Companies /
Pension Funds10%
Government Agencies /
Supranationals11%
Mutual Funds / Fund Managers
5%
Other8%
U.S. Dollar Market
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Ontario’s Green Bond Initiative
• Ontario’s Green Bonds are being used to finance transit and other environmentally
friendly infrastructure projects across the province
• Ontario’s Green Bond framework specifies five categories of eligible projects:
Clean Transportation
Energy Efficiency and Conservation
Clean Energy and Technology
Forestry, Agriculture and Land Management
Climate Adaptation and Resilience
• Assurances:
Ontario’s Green Bond Framework has been developed in consultation with the
Center for International Climate and Environmental Research – Oslo (CICERO)
An assurance audit is performed by the Auditor General of Ontario verifying
amounts allocated to selected projects and tracking the amount of Green Bond
proceeds
• Ontario’s issues under the Green Bond program will carry the full faith and credit of the
Province of Ontario with no project risk
• The Province issued its second Canadian dollar Green Bond in January 2016
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Distribution by Geographic Region Distribution by Investor Type
Insurance, Pensions, and
Corporates19%
Asset Managers
54%
Banks15%
Official Institutions
11%
Retail1%
Canada65%
U.S.21%
Europe, Middle East and Africa
(EMEA)14%
• On January 22nd, 2016, the Province of Ontario successfully launched its second Global CAD Green Bond,
with a 7-year, $750 million issue
• Demand was strongly driven by investors with Green mandates and/or UN PRI signatories, representing
70 per cent of overall sales
• There was strong international interest, with 35 per cent of investor participation from the U.S. and Europe
• The issue was also made available to retail investors through Canadian financial institutions
• Global offering format was used to leverage and facilitate international investor interest with strong trading
liquidity supported by Ontario’s Canadian dollar syndicate
• Eight eligible projects have been selected to receive funding, with an emphasis on clean transportation and
energy efficiency and conservation
Ontario’s Second Green Bond Deal Highlights
12
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Average Unrestricted Liquid Reserve Levels
($ Billions)
Note: Chart dates represent fiscal years ending March 31st.
Source: Ontario Financing Authority.
Liquid Reserve Levels
8.3
14.4
19.420.2
23.3
24.923.5
21.7
0
5
10
15
20
25
30
2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16
• Liquid reserves (cash and short term investments) are maintained at levels sufficient to ensure the Province
is able to meet its short-term financial obligations
13
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C$ T-Bill ProgramU.S.$ Commercial
Paper ProgramTotal
Currency Canadian Dollars U.S. Dollars -
Maturity 1 day-3 years* 1-270 day(s) -
Authorized C$33.0 billion C$15.0 billion C$48.0 billion
Outstanding C$14.7 billion C$7.6 billion C$22.3 billion
Available C$18.3 billion C$7.4 billion C$25.7 billion
Short-Term Borrowing Capacity
14
*Regular issuance of 3M, 6M and 1Y T-Bills
• Ontario treasury bills and U.S. commercial paper are very well received in the money markets
and provide additional borrowing capacity if required
• Large capacity for short term borrowing: $48.0B authorized and $25.7B available
Note: As of April 28, 2016.
Source: Ontario Financing Authority.
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Medium-Term Borrowing Outlook
Note: The 2015–16 and 2016–17 borrowing requirements reflect current borrowing, they were $30.1B and $26.4B in the 2016 Budget projections
respectively, and will be updated with the next quarterly release. Numbers may not add due to rounding.
2015–16 Medium-Term Outlook
($ Billions)2015
Budget
Current
Outlook
In-Year
Change2016–17 2017–18 2018–19
Deficit/(Surplus) 8.5 5.7 (2.8) 4.3 0.0 0.0
Investment in Capital Assets 9.1 8.5 (0.6) 11.2 12.4 14.2
Non-Cash Adjustments (4.9) (3.1) 1.8 (5.8) (6.1) (6.3)
Loans to Infrastructure Ontario 1.1 0.8 (0.2) – 0.3 0.1
Other Net Loans/Investments 1.0 (0.2) (1.2) (0.9) (0.8) (1.2)
Debt Maturities 21.0 21.1 0.1 21.5 17.5 22.1
Debt Redemptions 0.2 – (0.2) 0.1 0.1 0.1
Hydro One Special Dividend – (0.8) (0.8) – – –
Total Funding Requirement 35.9 31.9 (4.0) 30.3 23.3 28.8
Canada Pension Plan Borrowing – – – (0.1) – –
Decrease/(Increase) in Short-Term Borrowing – – – (1.0) – –
Increase/(Decrease) in Cash and Cash Equivalents – 3.5 3.5 (2.7) – –
Preborrowing from 2014–15 (4.8) (5.3) (0.5) – – –
Total Long-Term Public Borrowing 31.1 30.1 (1.0) 26.4 23.3 28.7
Preborrowing in 2015–16 – 2.0 2.0 (2.0) – –
Total Long-Term Public Borrowing* 31.1 32.1 1.0 24.4 23.3 28.7
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Canadian Dollar Non-Public Debt
$11.9B4%
Canadian Dollar Treasury
Bills $14.5B4% U.S. Dollar
Commercial Paper$6.4B
2%
Foreign Currency
Bonds$54.5B
17%
Canadian Dollar Public
Bonds, $238.0B
73%
Total Debt Composition
$325.3 Billion Outstanding(projected to March 31, 2016)
Canadian Dollar Public Bonds
• Syndicated Bonds
• Medium-term Notes
• Floating rate Notes
• Ontario Savings Bonds
• Bond Auctions
• Real Return Bonds
• Green Bonds
Note: Numbers may not add due to rounding.
Source: Ontario Financing Authority.
Debt Outstanding
by Currency
CurrencyDebt
Outstanding
Canadian Dollar Public Debt $252.5B
Canadian Dollar Non-Public Debt $11.9B
U.S. dollars $45.0B
Euros $12.1B
Swiss francs $1.9B
Japanese yen $0.5B
Australian dollars $1.4B
South African rand $0.01B
16
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7.7
8.8
10.8
13.9
14.5 14.614.8
14.2 14.3
15.5
15.0
14.2
12.9 12.9
11.1
9.9
9.1
8.68.8
9.18.8
9.2 9.1 9.1 9.0 8.9 9.0 9.09.2
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
Actuals 2016 Budget Forecast
17
Interest on Debt-to-Revenue
(Per Cent)
Interest on Debt-to-Revenue
Source: Ontario Financing Authority.
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29%
33%
7%
16%
14%
30+ Years
10 Years
7-8 Years
5 Years
<5 Years
Long-Term Borrowing Maturity Profile
18
Note: Numbers may not add due to rounding. As of March 31, 2016.
Source: Ontario Financing Authority.
2009–10 2015–16
Average Term: 14.2 yearsAverage Term: 8.1 years
7%
37%
1%
39%
17%
Term
• The Province has less refinancing risk and less interest rate risk than it had in
2009–10
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21.121.5
17.5
22.1
24.4
20.5
13.9
15.815.0
19.5
16.9
2.6
4.9 4.8
0.0 0.2
4.05.0
0.00.8
7.8
3.8
9.5
3.8
15.6
3.9
13.0
1.0
11.3
0.2
16.2
11.9
0
5
10
15
20
25
30
Note: Chart dates represent fiscal years ending March 31st.
Outstanding Issues
($ Billions)Canadian DollarForeign Currencies
Maturity Profile of Outstanding Issues
As of December 31, 2015
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Note: Excludes Ontario Electricity Financial Corporation debt.
Exposure Policy Limit
Foreign Exchange 0.3% 5.0%
Net Interest Rate Resetting 9.5% 35.0%
Risk Management
Of outstanding debt, interim April 28, 2016.
20
• Monitor and manage debt maturity profile to limit refinancing risk
• Maintain a high level of liquid reserves and short term borrowing capacity
• Enforce strict credit limits for financial and investment counterparties
• Have collateralized swap agreements in place for most swap counterparties
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Economic and Fiscal Summary
21
• Canada Overview
Economy estimated to have grown faster in 2014 than most major advanced economies,
but growth softened in 2015 mainly due to the drop in oil prices
• Ontario’s Economy
Ontario became one of the strongest growing provincial economies in Canada during
2014 and 2015, and, on average, private sector economists expect that trend to continue
over the next two years1
• Eliminating the Deficit
The government is dedicated to a fiscally sound approach to managing the Province’s
finances, and is committed to balancing the budget by 2017–18
The plan to balance the budget is focused on transforming government and responsibly
managing spending, and ensuring revenue integrity and addressing the underground
economy
• Mortgage Market
Conservative mortgage market
All high ratio residential mortgages issued by banks must be insured and the large
majority is guaranteed by the federal government1Ontario Ministry of Finance Survey of Forecasters (April 2016).
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• Canadian economy grew 1.2 per cent in 2015, following a 2.5
per cent advance in 2014
In Canada, growth slowed in 2015 largely due to the impact of lower
oil prices in energy-producing provinces
In Ontario, growth has remained solid, benefiting from ongoing U.S.
demand, a more competitive Canadian dollar and low oil prices
• Ranked as having the world’s soundest banks for eight
consecutive years1
• Lowest general government net debt-to-GDP ratio of any G7
country
1 World Economic Forum, Global Competitiveness Report (2008, 2009, 2010, 2011, 2012, 2013, 2014 and 2015).
Canada Overview
22
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Ontario Overview
23
• Located in prime area with
close ties to many major U.S.
cities
• Ontario has a diverse economy
with direct taxation powers and
stable growth
• Population of 13.8 million and
nominal GDP of $748 billion in
2015, both about 40 per cent of
Canada
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• Ontario has a diverse economy, with extensive manufacturing, financial and business services
and a smaller energy sector compared to the rest of Canada
Structure of the Ontario Economy, 2014 (Per Cent Share of Ontario Real GDP)
Ontario’s Diverse Economy
1 Includes estimate of imputed rental income on owner occupied dwellings.
Sources: Statistics Canada and Ontario Ministry of Finance.
Note: Numbers may not add due to rounding.
24
Services (77% of GDP)
Goods (23% of GDP)
Primary2% Utilities
2%Construction
6%
Manufacturing12%
Wholesale & Retail Trade
12%
Transportation & Warehousing
4%
Information & Cultural
4%Finance & Insurance
10%
Real Estate & Renting & Leasing
13%
Professional & Scientific
6%
Health & Education
12%
Public Administration
7%
Other Services9%
1
Primary14%
Utilities3%
Construction9%
Manufacturing9%
Wholesale & Retail Trade
10%
Transportation & Warehousing
4%
Information & Cultural
3%
Finance & Insurance
5%
Real Estate & Renting & Leasing
12%
Professional & Scientific
5%
Health & Education
12%
Public Administration
6%
Other Services8%
1
Structure of Rest of Canada’s Economy, 2014 (Per Cent Share of Rest of Canada’s Real GDP)
Services (65% of GDP)
Goods (35% of GDP)
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• Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Industries
25
Employment Gains since June 2009
(Thousands)
Note: Above-average wage industries are defined as those with earnings above the average hourly earnings of all industries in 2015.
Sources: Statistics Canada and Ontario Ministry of Finance (May 2016).
608 570
37
424
88 96
462
146
0
100
200
300
400
500
600
700
Ontario’s Strong Job Recovery Since the Global Recession
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2.7 2.6
2.3
2.5
2.3
2.1
2.42.5
2.32.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2014* 2015* 2016 2017 2018 2019
2016 Budget Current
* Actual
Sources: Statistics Canada and Ontario Ministry of Finance Survey of Private Sector Forecasts (February and April 2016).
Real GDP growth
(Per Cent)
26
• The current average private-sector forecast for real GDP growth is either slightly above or the
same as the time of the Budget over the forecast period
Private-Sector Growth Forecasts
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Shifting Global Economic Environment
27
Increased
oil supplyWeakening economic
growth in emerging
economies
Solid economic growth in
the U.S. and strengthening
growth in some advanced
countries
Key Global Economic DevelopmentsOver the past year and a half there has been a significant shift in the global economic environment.
Oil prices declining
from over $100 U.S.
per barrel to
recently $40 U.S.
The Canadian dollar
declining by about
16% relative to the
U.S. dollar
Stock market
volatility
Lower interest-rate
expectations
These developments and broader uncertainty about the global economic outlook have contributed to:
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Global Developments and Ontario’s Economy
28
Note: *M&E = Machinery and Equipment.
Sources: Statistics Canada; Ontario Ministry of Finance; IMF World Economic Outlook (January 2016); Bank of Canada and the U.S. Energy Information
Administration; Blue Chip Indicators (February 2016); MarketWatch; Canadian Real Estate Association and Ontario Ministry of Finance Survey of Forecasters
(February 2016).
Steady U.S. economic growth, low oil prices and a weaker Canadian dollar
are all conducive to Ontario’s economic growth.
However, higher import costs and weaker confidence could dampen the outlook.
Lower costs to consumers,
with a 17.9% decrease in
gasoline prices in 2015
Fruit and vegetable prices
increased 14.3% year over year
in 2015Q4
Lower dollar also means
rising import costs
to consumers
Higher travel costs for
Ontarians have decreased
trips abroad by 10.1% in 2015
Lower confidence and
increased competition can
limit investment — M&E*
down four straight quarters
Improvements in export
competitiveness, with
international merchandise
exports up 10.9% in 2015
Ontario saw an 9.0%
increase in international
visitors in 2015
Strong housing market,
with home resales up
9.6% in 2015
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29
Key Ontario Economic Indicators Outpacing Canada
28.6
21.0
13.3
10.3 10.1
7.1
1.6
(18.4)
(12.8)
(2.2)(0.5)
13.8
1.6 0.1
(22.0)
(18.0)
(14.0)
(10.0)
(6.0)
(2.0)
2.0
6.0
10.0
14.0
18.0
22.0
26.0
30.0
Housing Starts MerchandiseExports
ManufacturingSales
WholesaleTrade
Home Resales Retail Trade Private-SectorEmployment
Ontario Rest of Canada
Sources: Statistics Canada, Canada Mortgage and Housing Corporation and Canadian Real Estate Association.
Per Cent Change, Year-to-Date 2016
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30
2.5 2.6
1.9
1.3 1.2 1.21.0
-0.7
-1.6
-2.6
2.62.4
2.2
1.71.5 1.4
0.9
0.4
-1.0-0.9
2.62.5
2.3
1.9
1.5 1.5
1.2
2.01.8
0.6
(3.0)
(2.0)
(1.0)
0.0
1.0
2.0
3.0
BC ON MB QC NS PEI NB SK AB NL
2015 2016 2017
Note: Ontario 2015 is actual.
Sources: Ontario Ministry of Finance Survey of Private Sector Forecasts (April 2016).
Real GDP growth(Per Cent)
Private-Sector Growth Forecasts
• Private sector economists expect Ontario to be among the growth leaders in 2015, 2016
and 2017
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0.6
1.1
1.3
1.61.7
2.0 2.0
2.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Average Real GDP Growth(Per Cent)
0.5
1.2
1.5 1.5
2.2 2.2
2.42.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Average Real GDP Growth (Per Cent)
Sources: Consensus Economics (April 2016) and Ontario Ministry of Finance Survey of Private Sector Forecasts (April 2016).
Ontario’s Outlook Compares Favourably with G7
G7 Economic Growth, 2016 G7 Economic Growth, 2017
31
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32
Ontario Economic Growth Will Be Led by Investment and Trade
2.2
1.9
1.1
2.0
3.4
3.0
2.2
0.0
1.0
2.0
3.0
4.0
Ontario RealGDP Growth
HouseholdSpending
Government ResidentialInvestment
BusinessInvestment
Exports Imports
Notes: 1 Government includes investment and consumption expenditure.2 Business investment includes investment in plant, equipment and intellectual property products.
Source: Ontario Ministry of Finance (Budget 2016).
Average Annual Per Cent Change, 2016 to 2019
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95
100
105
110
115
120
125
130
135
140
Jan. 2014 Apr. 2014 Jul. 2014 Oct. 2014 Jan. 2015 Apr. 2015 Jul. 2015 Oct. 2015 Jan. 2016
Notes: Exchange-rate-sensitive goods are fabricated metal products, non-metallic mineral products, plastic and rubber products, building and
packaging materials, industrial and electronic machinery, equipment and parts, communication and audio/video equipment, medium and heavy
trucks, buses and other motor vehicles, motor vehicle engines and parts, aircrafts, aircraft and other transportation equipment and parts, clothing,
footwear and textile products, paper and published products, pharmaceutical products, furniture, and cleaning products and appliances. Data
expressed in nominal terms.
Sources: Statistics Canada, Bank of Canada and Ontario Ministry of Finance.
Exchange-Rate-Sensitive Exports Already Benefiting from Lower Canadian Dollar
Index, Nominal Exports
(January 2014 = 100)
Exports of exchange-rate
sensitive products
(Three-month moving average)4.3%
Exports of other products
(Three-month moving average)
33
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34
Lower Oil Prices Providing Savings to Consumers and Businesses
3.8
2.7
0.2
6.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Industry Households Other Total
Notes: 1 Savings compare average prices in 2015 to 2014. Adjusted for the exchange rate.2 A small share, “Other” accruing to government and the non-profit sector.
Source: Ontario Ministry of Finance.
Estimated savings in 2015
($ Billions)
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33.2
18.116.6 16.3
0
5
10
15
20
25
30
35
40
2009 2010 2014 2015
U.S. (2015)
OECD (2015)
Notes: The marginal effective tax rate (METR) takes into account federal and provincial/state corporate income taxes, capital taxes and sales taxes.
The OECD METR is the average for OECD member countries excluding Canada.
The METRs for the U.S. and OECD countries include measures announced as of January 1, 2015.
Sources: Finance Canada and Ontario Ministry of Finance.for the U.S. and OECD countries include measures announced as of January 1, 2011.
Marginal Effective Tax Rate
(Per Cent)
35
• Ontario’s Marginal Effective Tax Rate on new business investment has been cut in half since 2009
Cutting Ontario’s Marginal Effective Tax Rate
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Ontario’s Plan to Eliminate the Deficit
36
(19.3)
(14.0) (13.0)
(9.2)(10.5) (10.3)
(5.7)
(4.3)
0.0 0.0
(24.7)
(19.7)
(17.3)(15.9)
(13.3)(12.5)
(8.5)
(4.8)
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
0.0
5.0
2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19
Actual
Fiscal Balance
($ Billions)
1 Represents current forecast for 2015–16 to 2018–19. For 2009–10 to 2014–15, actual results are presented. 2 Forecast for 2015–16 to 2017–18 is based on the 2015 Budget; for 2014–15 is based on the 2014 Budget; for 2010–11 to 2013–14 is based on the 2010
Budget; and for 2009–10 is based on the 2009 Ontario Economic Outlook and Fiscal Review.
Source: Ontario Ministry of Finance.
Fiscal Forecast2
Performance / Outlook1
OutlookInterim
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Net Debt-to-GDP and Accumulated Deficit-to-GDP
37
13.4
17.1
21.1
26.728.4
30.231.3 30.6 29.5
32.1
29.328.2
26.8 27.2 26.4 27.4 26.6 26.0
27.9
32.434.0
35.737.1
38.5 39.4 39.6 39.6 38.9 38.5
28.2
24.0 24.4 23.6
19.618.5
17.618.6
21.922.9
24.0 24.625.5 26.0 25.9 25.4
24.323.3
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Net Debt-to-GDP Accumulated Deficit-to-GDP
Notes: Net Debt has been restated to include Broader Public Sector Net Debt, starting in 2005-06. Historical Net Debt-to-GDP has been revised to
reflect historical GDP released by Statistics Canada in November 2015.
Sources: Statistics Canada and Ontario Ministry of Finance.
• Net debt-to-GDP is expected to peak at 39.6 per cent in 2015–16, remain level in
2016–17 and begin to decline in 2017–18
Per Cent
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Ontario’s Medium-Term Fiscal Plan and Outlook
Ontario’s Medium-Term Fiscal Plan and Outlook
($ Billions)
ActualCurrent Outlook Medium-Term Outlook
2014–15 2015–16 2016–17 2017–18 2018-19
Revenue 118.5 126.5 130.6 137.7 141.9
Expense
Programs 118.2 120.9 122.1 124.2 127.6
Interest on Debt 10.6 11.2 11.8 12.5 13.1
Total Expense 128.9 132.1 133.9 136.6 140.7
Reserve – 0.2 1.0 1.1 1.2
Surplus/(Deficit) (10.3) (5.7) (4.3) 0.0 0.0
Note: Numbers may not add due to rounding.
38
• The government is currently projecting deficits of $5.7 billion in 2015–16
and $4.3 billion in 2016–17, and a return to balance in 2017–18. This
reflects an improvement of $2.8 billion in 2015–16 and $0.5 billion in
2016–17 compared with the deficit targets laid out in the 2015 Budget
• Ontario is also projecting that it will remain balanced in 2018–19
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Composition of Revenue 2016–17
Revenue $130.6 Billion
Source: Ontario Ministry of Finance, 2016 Budget.
Note: Numbers may not add due to rounding.
Personal Income Tax
$32.2B24.6%
Government of Canada Transfers
$24.6B18.9%
Income from Govt.
Business Enterprises
$5.0B3.8%
Other Non-Tax Revenue
$9.1B7.0%
Corporations Tax
$12.1B9.2%
Sales Tax$24.0B18.4%
Other Taxes$23.6B18.1%
• Revenue sources are diversified
• Taxation revenues account for 70.3 per
cent of total revenues
• Government of Canada transfers
including the Canada Health Transfer,
Canada Social Transfer and Equalization
account for 18.9 per cent of total
revenues
• Net Income from Government Business
Enterprises (Liquor Control Board of
Ontario, Ontario Lottery and Gaming
Corporation, Hydro One Ltd, Brampton
Distribution Holdco Inc. and Ontario
Power Generation Inc.) account for 3.8
per cent of total revenues
• Other Non-Tax Revenues such as
Vehicle and Driver Registration fees,
Sales and Rentals, and Royalties
account for 7.0 per cent of total revenues
39
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Health Sector $51.8B 38.7%
Other Programs
$16.5B 12.3%Education
Sector*$25.6B 19.1%
Children's and Social Services
Sector $15.8B 11.8%
Interest on Debt
$11.8B 8.8%
Postsecondary and Training
Sector $7.9B 5.9%
Justice Sector $4.5B 3.4%
* Excludes Teachers’ Pension Plan. Teachers’ Pension Plan expense is included in Other Programs.
Note: Numbers may not add due to rounding.
• The largest expense is the Health
Sector at $51.8 billion, accounting
for 38.7 per cent of total expense
• Interest on Debt, included as part
of Total Expense, is $11.8 billion,
or 8.8 per cent of total expense
Total Expense $133.9 Billion
Composition of Total Expense 2016–17
40
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Key Risks and Upside Potential to the Outlook
41
Upside Potential
• Sustained lower oil prices could provide a greater-than-expected boost to the Ontario economy through lower costs for businesses and households.
• The recent improvements in Ontario exports and investment due to solid U.S. growth and a weaker Canadian dollar could intensify if business confidence improves.
Downside Risks
• Uneven and uncertain global growth has exacerbated volatility in interest rates, stock markets, currencies and commodity prices. This could dampen business investment and export growth in the province.
• Intense global competition and weak productivity growth could hamper Ontario’s export sector.
• Domestically, a potential housing market correction remains a risk, particularly given high levels of household debt.
• Risks to the forecast beyond 2015 are balanced.
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Rating Agencies
A+
Current Ratings
Long-Term
Current Ratings
Short-Term
Credit Ratings
Aa2
A-1+
P-1
Standard & Poor's
Moody’s
F1+AA-Fitch
42
AA (low) R-1 (mid)DBRS
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Summary
• Current Ontario spreads represent value for investors
• Ontario bonds are highly liquid
• We maintain a responsive and flexible approach in dealing with markets
• The government remains committed to balancing the budget by 2017–18
• The province is well positioned for long-term fiscal sustainability and is
projecting to remain balanced in 2018–19
For up-to-date information on our borrowing program, please visit our website:
www.ofina.on.ca
To contact our funding team, please use our website or contact us directly
43
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Appendix
44
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ONTARIO U.S.
Credit
Ratings
• Ontario is a strong investment grade credit.
• Moody’s credit rating is based on joint default analysis which builds
in the strong likelihood of federal support.
• Despite higher debt levels, Ontario credit ratings are stronger than
a number of U.S. states.
• Material differences in fiscal flexibility and division of
responsibilities across levels of governments are reasons why the
U.S. states are not considered peers by credit rating agencies.
Financing
• Strong access to international capital markets. Regular issuer in
U.S., with well defined yield curve.
• All bonds issued by the province are General Obligation Bonds.
• Bonds are often tied to certain revenue streams which can impact
term structure.
• Issuing General Obligation Bonds may require voter approval or
legislative backing.
Federal
Support
• Strong federal partner. Federal transfers include health, social and
equalization.
• Transfers account for about 19 per cent of Provincial revenues, and
province has considerable flexibility in how funds are used.
• Federal transfers more secure - multi-year formula agreements.
• Federal support could be jeopardized by cutbacks which increases
uncertainty.
• U.S. states receive conditional transfers. No federal program aimed
explicitly at reducing the disparities in state fiscal capacity.
Public
Pensions
• Canada’s Pension Plan is fully funded with total assets of $282.6
billion (December 31, 2015).
• Joint trusteeship for Ontario Teachers’ Pension Plan and Ontario
Public Service Union. Sole sponsor of the Public Service Pension
Plans.
• The majority of Ontario's pension plans have surpluses. Those with
small unfunded liabilities are being addressed with special
payments over 15 years to fund the shortfall.
• U.S. Social Security Trust Fund has a large unfunded liability.
• Large unfunded pension liability and growing post-employment
liability. Aggressive discount rate assumptions.
• Growing budget pressures will continue to challenge Governments’
ability to provide adequate contributions.
Ontario Compared to U.S. States
4545
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ONTARIO U.S.
Spending
• Constitutional authority over health and education spending
which accounts for over 63 per cent of total program
spending.
• Federal government provides support for health and social
spending.
• Health care and education funded by private sector and
various levels of government.
• Dedicated tax structure funds education.
Revenue
• Ontario’s taxation powers are akin to sovereign nations.
• Unfettered access to broad range of tax base including:
personal and corporate income tax, sales, payroll and
property taxes.
• Simple majority of legislature required to raise taxes which
gives the province a high degree of fiscal policy flexibility.
• Limitations under state constitutions to levy and collect taxes
vary widely.
• Voter approval required to raise taxes. Some states require
super majority in legislature or even a referendum to raise
taxes which severely limits flexibility.
• Revenue sources include: personal and corporate income
tax. Most states collect sales tax and some states collect
property taxes.
Balanced
Budget
• Financial Transparency and Accountability Act requires the
government to develop a recovery plan for achieving a
balanced budget.
• Can use fiscal policy as shock absorber in times of
economic weakness.
• Planning assumptions are conservative, prudence and
contingency built in. Plan to return to balance by 2017–18.
• Almost all states are prevented from planning for operating
deficits, with fiscal restraints generally embedded in state
constitutions or other legislation.
• Fiscal tightening has put strain on weak economy and
reduced liquidity.
• Planning assumptions can be aggressive. Many states have
relied on special balances/reserves to meet budget
requirements and funds getting depleted.
Ontario Compared to U.S. States – Cont’d
4646
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Canada Compared to U.S. – Housing Market
47
CANADA U.S.
Govern
mentA
gency
• Canada Mortgage and Housing Corporation (CMHC) is Canada’s
national housing agency.
• Established as a government-owned corporation in 1946 to
address Canada’s post-war housing shortage.
• Canada’s premier provider of mortgage loan insurance, mortgage-
backed securities, housing policy and programs, and housing
research.
• No policy goal of increasing home ownership.
• Government-sponsored enterprises, Federal Home Loan Mortgage
Corporation (Freddie Mac) and Federal National Mortgage
Association (Fannie Mae).
• National mortgage finance companies which keep money flowing to
mortgage lenders to help strengthen the U.S. housing and
mortgage markets and to support affordable homeownership.
• Do not offer home loans.
• Securitize or buy mortgage loans from originating lenders.
Mort
gage Insura
nce • Bank Act prohibits federally regulated banks from providing
residential mortgages without mortgage loan insurance if loan is
greater than 80 per cent of the purchase price or value of the
home.
• Insurance covers the entire amount of the loan and is for the entire
life of the mortgage. Mortgage insurance contracts by private
insurers are 90-percent backstopped by the federal government
(CMHC is fully backed by the government).
• Lenders are not legally required to use mortgage loan insurance.
• However, because Fannie Mae and Freddie Mac are prohibited
from purchasing uninsured mortgages when the borrower makes a
down payment of less than 20 per cent, U.S. lenders often require
mortgage loan insurance.
Mort
gage-B
acked
Securities
• About 34 per cent of Canadian mortgages are securitized.
• Almost all securitized Canadian mortgages are funded by
mortgage-backed securities (MBS) guaranteed by CMHC under
National Housing Act.
• Over half of those MBS were held by the Canada Housing Trust,
funded by CMHC-guaranteed Canada Mortgage Bonds (CMBs).
• Approximately 55 per cent of American mortgages are securitized.
Mort
gage D
efa
ult • Mortgages are typically “full-recourse” loans.
• Borrower continues to be responsible for repaying the loan even in
the case of foreclosure.
• Lenders can take legal action to recoup money from homeowner if
foreclosed home is sold for less than the amount owing on the
mortgage, plus many of the costs incurred by the lender.
• In many U.S. jurisdictions, mortgages are “non-recourse”.
• Borrowers can often walk away from their homes and the
associated mortgage debt, leaving lenders with no recourse
beyond the property.
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Ontario Compared to Germany
48
CANADA GERMANY
Federal Government Provinces Federal Government Länder
Federalism
Jurisdiction within respective sphere of
assigned responsibilities
Can exercise federal spending power in
areas agreed to by the provinces and
territories
Can legislate in areas not specifically
defined in Constitution
Jurisdiction over constitutionally defined
areas of responsibility
Possess authority to borrow
autonomously in the capital markets
Distribution of powers and duties
between the federal government and
the Länder are set out in the Basic Law
(Constitution)
Holds most legislative powers
Can provide general supplementary
grants or financial aid for particularly
important investments
If Länder acts on federal commission,
then federal government finances the
expenditure
All responsibilities not expressly given to
the federal government are responsibility of
the Länder
Administrative tasks are nearly under the
exclusive jurisdiction of the Länder
Länder manage their own budgets
Participate in federal legislature through
representation in upper house
Possess authority to borrow autonomously
in the capital markets
Taxation
Powers
Power to raise money by any means of
taxation
Occupies majority of tax fields (e.g.
harmonized sales, personal and
corporate income taxes, customs import
duties). Indirect taxes such as
employment Insurance and Canada
pension plan
Power to raise revenue through
taxation within the province (e.g.
harmonized sales taxes, personal and
corporate income taxes, and property
taxes)
Exclusive power to legislate on all forms
of taxes
Imposes the majority of taxes. Some tax
revenue accrues to the federation (e.g.
customs duties, capital transactions)
Revenue from income taxes, corporate
taxes and taxes on imports is shared as
determined by federal law
Generally, Länder have limited taxation
power
Some tax revenue accrues to the Länder
(e.g. property tax, beer tax)
Majority of total tax revenue is reallocated
TransfersEqualization payments, health and
social programs, direct transfers to
individuals
Receive equalization, federal health and
social transfers
Only Alberta, British Columbia,
Newfoundland and Labrador and
Saskatchewan will not receive
Equalization in 2016–17
General supplementary grants are
provided to equalize financial capacities
of the Länder
Financial aid is provided for specific
investments
Länder may make agreements with each
other for delivery of programs/services
Länder are also able to make grants to
communes (municipalities) to support
projects
Areas of
Authority
Includes defence, foreign affairs, trade
and commerce, fisheries, postal and
telecommunications, employment
insurance, national pension plan and
equalization payments
Includes health care, education, social
services, highways, natural resources
and municipal governments
Includes foreign relations, currency,
citizenship and immigration, customs/
trading, air transport, railways, nuclear
energy
Concurrent jurisdiction includes public
welfare, labour law, agriculture, forestry
Federal law takes precedence over
Länder law
Includes education, internal security,
policing
Länder may enact laws at variance with
federal laws in specific areas, including
natural protection, regional planning and
water resource management
Obliged to administer federal laws
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Legal Notice
This presentation was compiled by the Ontario Financing Authority. This information is intended for general information purposes only and does
not constitute an offer to sell or a solicitation of offers to purchase securities. It has not been approved by any securities regulatory authority and it
is not sufficient for the purpose of deciding to purchase securities. It may have errors or omissions resulting from electronic conversion,
downloading or unauthorized modifications.
Statements in this presentation may be “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve uncertainties, risks, and other factors which could cause the state of Ontario’s economy to differ
materially from the forecasts and economic outlook contained expressly or implicitly in such statements. The province of Ontario undertakes no
obligation to update forward-looking statements to reflect new information, future events or otherwise, except as may be required under applicable
laws and regulations.
While the information in this presentation, when posted or released, was believed to be reliable as of its date, NO WARRANTY IS MADE AS TO
THE ACCURACY OR COMPLETENESS OF THIS DOCUMENT OR THE INFORMATION IT CONTAINS.
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Investor Relations
Ontario Financing Authority
1 Dundas Street West, Suite 1200
Toronto, Ontario M5G 1Z3
Canada
Telephone: (416) 325-8000