version: 30 september 2015 kommuninvest …...2015/09/30 · u21 national higher education systems...

Swedish Local Government

Debt Office

KOMMUNINVEST

Version: 30 September 2015

Photo

: E

ric L

indvall,

Im

ageB

ankS

weden

http://upload.wikimedia.org/wikipedia/commons/9/91/Coat_of_Arms_of_Sweden_Lesser.svg

Bloomberg ticker: KOMINS

Disclaimer

www.kommuninvest.org 2

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Bloomberg ticker: KOMINS www.kommuninvest.org 3

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Disclaimer (cont.)



KOMMUNINVEST

Value and security for AAA investors


• Founded 1986 by ten local governments. Currently

280 owners/members (total=310), of which 272

municipalities and 8 county councils/regions.

• AAA/Aaa, stable outlook.

• Explicit, irrevocable, unlimited, joint and several

guarantee from owners/members. Local

governments have constitutional right to levy

income tax on citizens.

• BIS 0% risk-weighting. Level 1 asset for LCR

purposes in the EU & Switzerland. Proposed Level

1 in the UK.

• Regulated by the Swedish FSA – Securities issued

by Kommuninvest are equal to state risk1.

• Monetary policy counterparty to the Riksbank and

member of its clearing and payment system RIX.

1) Clarification from Finansinspektionen is included in Investor Factbook



KOMMUNINVEST

Local government sector borrowing

• Increased pace of investment, principally due to urbanisation.

Emphasis on infrastructure, housing and energy supply.

• Stable debt levels in relation to GDP, between 11-13% of GDP



Municipalities (41%) (Lending solely to members of

Kommuninvest Cooperative Society)

KOMMUNINVEST

Loan portfolio distribution


Municipal housing companies (29%) (Loans guaranteed by members of


Other municipal companies (22%) (Loans guaranteed by members of


Municipal energy companies (7%) (Loans guaranteed by members of


County councils (1%) (Lending solely to members of


Source: Kommuninvest. Loan portfollio as of 30 June 2015

Loan portfolio duration: 2.3 yrs

(30 June 2015)

* Share of submitted loan offers accepted by

clients. Excludes proprietary capital markets

funding by clients.



KOMMUNINVEST

Financial highlights 2011– 2015


FY 2011 FY 2012 FY 2013 FY2014 HY2015

Lending, USDbn 20.4 24.4 25.3 27.0 29.4

Balance sheet total, USDbn 28.4 34.4 33.7 37.9 42.6

Net interest income, USDm 69.5 93.7 117.7 111.1 45.0

Operating profit, USDm 48.1 30.2 92.0 88.5 8.4

Leverage Ratio, reported according to CRR*, % n.a. 0.33 0.57 0.76 0.67

Leverage Ratio, including subordinated loan**, % n.a. 0.65 0.91 1.09 0.96

Total capital ratio 45.7% 30.4% 59.5% 49.3% 53.1%

Tier 1 capital

Note: Increase in share capital during

2015 must be approved by Swedish

FSA before inclusion as core Tier 1

capital. Approval was obtained on 24

August 2015.

SEK/USD = 8.2389 (30 Jun 2015)

* Tier 1 capital in relation to total assets and commitments (exposures).

** Tier 1 capital and subordinated loan issued by Kommuninvest Cooperative Society,

in relation to total assets and commitments (exposures).

Lending margins reduced from Q4-2014.

Future capital build-up to be based on direct

capital injections rather than income statement.


MACRO-ECONOMIC FRAMEWORK

Key facts Sweden


Capital Stockholm.

Government Parliamentary democracy,

Constitutional monarchy.

Population 9.7 million.

Currency Swedish krona (SEK).

European Union EU member since 1995, but not a

member of the monetary union,

EMU. Independent central bank.

Industry Diversified, export-based.

Major export sectors Machinery, Electrical products &

telecom, Chemicals & pharma-

ceuticals, Forestry, Minerals,

Automotive, Energy.

Major export markets Norway, USA, Germany, UK.

Rankings Social Progress Index (Soc. Prog. Initiative, Apr 2015) #2

U21 National Higher Education Systems (U21, May 2014) #2

BSRI Sovereign Risk Index (BlackRock, Jan 2015) #4

Global Competitiveness Index (World Economic Forum, 2014-15) #10

ORIGIN FOR LEADING COMPANIES

Volvo Ericsson

H&M Skanska

Electrolux

Sandvik

Tobii Technology


Swedish public sector debt 2003-2014


Robust public finances


Current account balance 1997-2015

Source: IMF World Economic Outlook Database, April 2015

Sourc

e:

IMF

World

Econom

ic O

utlo

ok

Data

base,

April 2015

Sourc

e:

Sw

edis

h N

atio

nal D

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Off

ice

and K

om

munin

vest,

Apr

2015



SWEDEN’S PUBLIC SECTOR

Constitutional system


Central Government

30 % of public sector spending

Local Governments

70 % of public sector spending

International Debt Market

An unlimited joint and

several guarantee covers

all liabilities

Kommuninvest has

already entered into and

will subsequently enter

into.

Local governments

cannot legally declare

insolvency nor suspend

payment.

Co-equal status between

central and local

government defined by

constitution.

Swedish constitution –

Instrument of Government

Art 1 Swedish democracy is

founded on the free formation

of opinion and on universal

and equal suffrage. It shall be

realized through a

representative and

parliamentary polity and

through local self-

government.

Art 7 Sweden has local

authorities at local and

regional level.

Chapter 14, Art 4 The local

authorities may levy tax for

the management of their

affairs.




Structure of public sector spending


• Childcare

• Healthcare

• Municipal housing

• Care of elderly and disabled

• Schooling for children and young

people •

• Law, order and security

• Sanitation and waste management

• Energy supply •

• Water supply and sewage

• Construction issues

Local governments 70% of public sector spending

Central government 30% of public sector spending

• Laws and ordinances

• Judicial system

• Defence & security

• Environment

• Higher education and research

• Transport infrastructure

• Rural affairs, animals and food

• Migration and integration

• National economy and budget




Local governments are major tax recipients


Local governments collect > 90% of income tax

Total income tax on households in 2012: SEK 605 bn, of

which local governments collected SEK 561 bn and central

government SEK 44 bn. Average Swedish income tax 2012:

26.4% (including effect of tax reductions).

Source: Swedish Tax Authority, Tax Statistical Yearbook 2014

Citizens income tax 2015: Income up to USD ~56,700 p.a. Solely local government tax paid, 29-34% of income (before effect of tax reductions). Income from USD ~56,700 - ~82,900 p.a.

Local government tax paid on all income. State income tax 20% paid on income above USD 56,700 Income above USD ~82,900 p.a. Local government tax paid on all income. State income

tax 20% paid on income between USD 56,700 and USD 82,900. State income tax 25% paid on income above USD 82,900. (SEK/USD=7.82 as of 2 January 2015)

Financing

comparison Norway Sweden Finland Denmark

Income tax 39% 69% 46% 46%

State grants 42% 16% 18% 25%

Charges 14% 6% 26% 19%

Other 5% 9% 10% 10%

Revenue of Nordic local governments

Public sector revenues – taxes and fees, 2012 SEK 1,728 bn

Source: Statistics Sweden




Strong institutional framework


Balanced budget

requirement

Annual local

government budgets

should normally be in

balance, imbalances

must be restored within

3 years.

Law:

“Kommunallagen chap. 8

§4-5 (1991:900)”

Financial

equalisation

Imbalances between

local governments are

equalised annually

through income and

cost equalisation

schemes.

Law: “Lagen (2004:773)

om kommunalekonomisk

utjämning”

Requirement for

sound financial

management

Local governments

must work according to

a sound financial

management.

Law:

“Kommunallagen chap. 8

§1-2 (1991:900)”

Local government

financing principle

If the government alters

the tasks of local

governments, the

government must also

neutralise their financial

effect.

Approved by the

government and in force

since 1973.

Financial prudence explains Sweden’s strong public finances

and low levels of public debt

According to the Swedish Bankruptcy Act a local government cannot be declared bankrupt since they do not

fulfil the criteria of being insolvent. This is due to the fact that the local governments have the constitutional

right to levy taxes. The Swedish Court has stated that the local governments in Sweden are not covered by the

Bankruptcy Act. (RH 1996:75) This view is supported by the Swedish legal doctrine.



KOMMUNINVEST

Explicit and unlimited guarantee


STRONG

STABLE

IMMEDIATELY

ENFORCEABLE

• Joint and several guarantee (explicit, irrevocable and unlimited )

signed by all members of Kommuninvest Cooperative Society,

for all undertakings made by Kommuninvest i Sverige AB.

municipalities and county councils cannot be declared bankrupt and

cannot cease to exist other than by merging;

Swedish municipalities and county councils are entitled to levy taxes;

state bears ultimate responsibility for the local government sector.

• Underpins Kommuninvest’s AAA/Aaa rating.

• No Swedish local government has ever defaulted

on a payment commitment.

Sweden’s Supreme Administrative Court confirmed the right of local

government to sign the joint and several guarantee in a 1994 ruling.

• Investors can make a claim on any, or all, of the guarantors

without a court order

All debt guaranteed by Swedish local governments is BIS 0% risk-

weighted in the EU area



KOMMUNINVEST

Leverage ratio

• Kommuninvest aims to reach prescribed leverage ratio level

through profit build-up; additional contribution capital from

members/owners and, if required, other capital instruments.

• New upper level for capital contributions established at the

2014 and 2015 AGMs of Kommuninvest Cooperative Society:

SEK 900 per inhabitant for municipality members/owners,

equivalent to 1.5 % leverage ratio by 2018 in expected growth

scenario (in combination with expected increase of SEK 1 bn

subordinated loan issued in 2010).

• Possibility to issue AT1 capital instruments to members

/owners or external parties were resolved by AGMs in 2014

and 2015 and now legally binding according to Swedish law.

Members/owners’ preference is to be sole providers of capital.

• Members/owners who contribute capital up to the upper level

are entitled to best loan margins. Letters to members/owners

sent out in May 2015, binding response re 2015 capital

subscription required by 31 Oct 2015.



KOMMUNINVEST

Liquidity coverage ratio (LCR)

Sweden: Level 1 • Effective from 1 January 2013.

European Union: Level 1 • According to European Commission Delegated Act on Liquidity Coverage Ratio, dated

10 October 2014, Kommuninvest securities are Level 1 assets. Effective from 1

January 2015.

UK: Proposed Level 1 • According to a consultation paper published by the Prudential Regulation Authority

(CP27/14, on the application of the European Union LCR in the UK), Kommuninvest

securities will be eligible as Level 1 assets in the UK (currently level 2) from October

2015.

Switzerland: Level 1 • According to the Swiss National Bank, Kommuninvest securities are Level 1 assets.

Effective from 1 January 2015.

US: Possible Level 1 • In Sweden, local governments are constitutionally at the same level as the sovereign.

Regarding US LCR Kommuninvest considers itself at same level as sovereign

issuers, and eligible as Level 1 at investor discretion. Effective from 1 January 2015.


Funding

Photo

: N

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ImageB

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weden

Funding




Borrowing per currency 2011 – 2015 (25 sept), USD bn

excl. commercial paper borrowing

Major transactions 2015/2014 (fixed)

Apr ‘15: 6yr SEK 7.1bn benchmark bond due Sept 2021 (SEK 9.4 bn outstanding)

Apr ‘15: 2yr USD 500m bond due Apr 2017 & 10.5 yr AUD 100m due Oct 2025

Jan ’15: 3yr USD 1.25 bn RegS/144A benchmark bond due January 2018

Jan ‘15: 5yr CAD 250m RegS/144A bond due Jan 2020

Nov ‘14: 4yr SEK 5.4bn benchmark bond due June 2018 (SEK 9.1 bn outstanding)

Sep ’14: 5yr USD 1bn RegS/144A benchmark bond due Nov 2019

Funding strategy based on diversification

and core benchmark markets


Eligible

currencies

AUD, BRL, CAD,

CHF, DKK,

EUR, GBP,

HKD, JPY,

KRW, MXN,

NOK, NZD,

SEK, TWB,

ZAR, USD

• Diversification

(currencies, investors,

instruments)

• Flexibility

• Benchmark sizes

• Liquid curves

• 50 percent in SEK



STRATEGIC STRATEGIC STRATEGIC


PROGRAMME Commercial

Paper

Euro-

Commercial

Paper (Step-classification)

Euro Medium

Term Note

(144 A)

Swedish

Benchmark

Programme

Kangaroo

and Kauri

Schuldschein,

JPY Loan

CAPACITY SEK 50 bn EUR 7 bn EUR 25 bn unlimited AUD 1 bn unlimited

DEALERS Nordea, SEB,

Danske Bank,

Swedbank, SHB

Citi, Barclays,

Deutsche, Goldman

Sachs, Credit

Suisse, BoA/ML,

UBS

Citi, Commerzbank,

Deutsche, Daiwa,

J.P.Morgan, Merrill

Lynch, Mizuho,

Morgan Stanley,

Nomura, UBS

Swedbank, Danske

Bank, Handels-

banken, Nordea,

SEB

Nomura, CBA,

RBC, TD

Securities, ANZ,

Westpac, National

Australia Bank

RATING K1 (S&P),

P-1 (Moody’s)

A-1+ (S&P),

P-1 (Moody’s)

AAA (S&P),

Aaa (Moody’s)

AAA (S&P),

Aaa (Moody’s)

AAA (S&P),

Aaa (Moody’s)

AAA (S&P),

Aaa (Moody’s)

CURRENCIES SEK, EUR EUR, USD, SEK,

CHF, GBP

Any currency

subject to

agreement

SEK AUD/NZD EUR

SHORT-TERM MEDIUM- AND LONG-TERM

KOMMUNINVEST

Funding programmes



USD 1.95 bn

FLOATING

Oct 2015: 0.65bn, Jan 2016: 0.3bn, Dec 2018: 0.5bn, May 2019: 0.5bn

CHF 0.865 bn

Dec 2015: 300m, Dec 2016: 250m, Oct 2020: 65m, Mar 2021: 100m, Feb 2022: 150m

FIXED

www.kommuninvest.org

20

OUTSTANDING BONDS (A SELECTION)

Commitment to benchmark markets

SEK 121.7 bn

Eligible as collateral &

repos with the Riksbank

(Sweden’s central bank),

Bank of Canada,

European Central Bank,

Federal Reserve,

Monetary Authority of

Singapore, Reserve

Bank of Australia,

Reserve Bank of New

Zealand and Swiss

National Bank.

Oct 2016: 21.6bn, Aug 2017: 28.0bn, June 2018: 9.7bn, Mar 2019: 23.9bn, Dec 2020: 29.1bn, Sep 2021: 9.4bn

SEK BENCHMARK PROGRAMME (FIXED)

USD 10.4 bn

Jun 2016: 2.35bn, Sep 2016: 0.8 bn, Dec 2016: 1.25 bn, Feb 2017: 1.0bn, Apr 2017: 1.0bn,

Oct 2017: 1.75bn, Jan 2018: 1.25bn, Nov 2019: 1.0bn

USD BENCHMARK PROGRAMME (FIXED)

Nov 2018: 125m, Aug 2022: 275m, Feb 2024: 50m, Oct 2025: 150m

AUD 0.6 bn

FIXED

Jan 2020

CAD 0.3 bn

FIXED



KOMMUNINVEST

Funding plan 2015

Long-term funding: USD 12-14 bn • Focus on USD and SEK benchmark programmes, Uridashi

Short-term funding: • ECP, domestic CP, short-term Uridashi

What impacts funding volume during the year? • Revisions to lending forecast

• Early redemptions in outstanding borrowings

Change in funding need – impact on funding programmes USD benchmark programme No impact (strategic programme)*

SEK benchmark programme No impact (strategic programme)*

Private placements More / fewer transactions

ECP Issuance adapted to cover early

redemptions in outstanding

borrowings or to adapt to

increase/fall in short-term lending

* Issuance may rise, provided there is investor demand



KOMMUNINVEST

Green Bond issuance


Eligible projects

• Renewable energy

• Energy efficiency, focus on

non-fossil energy systems

• Green buildings and energy

efficiency:

• Public transportation

• Waste management

• Water management

• Adaptation measures in

buildings, infrastructure and

sensitive surroundings

• Environmental management

• Green Loans offered to

customers from 1 June 2015.

• Multi-level loans approval

process, incl. verification by the

environmental functions of

Kommuninvest’s members and

final approval by Kommuninvest

Green Bonds Environmental

Committee.

• Framework developed w/

leading bank.

• Second opinion from Cicero.

• Aim to launch inaugural Green

Bond Q4-2015.



FUNDING PROGRAMMES

Swedish benchmark programme


• Strategic funding programme est. 2010.

Main tool in SEK 50% funding target.

• 5 market makers, repo facility, buybacks.

• 1-2 new bonds per year (syndication) + taps.

• LCR Level 1. Liquidity class 2 with Riksbank.

Issue ISIN Maturity Coupon Outstanding amount*

K1610 SE0005423753 12 Oct, 2016 2.00% SEK 21.6 bn

K1708 SE0003787985 12 Aug, 2017 4.00% SEK 28.0 bn

K1806 SE0006424990 12 Jun, 2018 1.00% SEK 9.7 bn

K1903 SE0005131299 12 Mar, 2019 2.25% SEK 23.9 bn

K2012 SE0005705621 1 Dec, 2020 2.50% SEK 29.1 bn

K2109 SE0006995064 15 Sept, 2021 1.00% SEK 9.4 bn

Total SEK 121.7 bn

Repo facility

• Established to support

programme liquidity.

• Unlimited ability for market

makers to enter into

reverse repos with

Kommuninvest.

• Attractively priced.

* Outstanding as of 31 August 2015.

Namn ISIN Förfall Kupong Utestående volym

(SEK)

K1610 SE0005423753 2016-10-12 2,00% 21 570 000 000

K1708 SE0003787985 2017-08-12 4,00% 27 986 000 000

K1806 SE0006424990 2018-06-20 1,00% 9 732 000 000

K1903 SE0005131299 2019-03-12 2,25% 23 870 320 000

K2012 SE0005705621 2020-12-01 2,50% 29 117 000 000

K2109 SE0006995064 2021-09-15 1,00% 9 440 000 000

Total 121 715 320 000



SWEDISH BENCHMARK PROGRAMME

Issue process


New bond (primary issue)

Kommuninvest (KI) informs market makers (MMs) of issue intent approx.

2 weeks prior to issue. Benchmark bond status (min. SEK 3 bn

outstanding) typically sought on first day of issue – MMs are then

required to continuously provide bid/ask quotes. Volume allocation split

equally between MMs, or adjusted according to MM interest.

On issue date, KI issues bonds to MMs. Typically, bonds are available to

investors through MMs within 15 minutes.

Tap to existing outstanding bonds

Taps in smaller volumes on an on-going basis, until the bond has a one

year remaining maturity. Targeted maximum size outstanding in a bond

is SEK ~25 bn.

Investors can buy or sell the bond through the MM. The MM can bid for

the bond in the market or with KI, or stay short and repo it from KI.



SWEDISH BENCHMARK PROGRAMME

Spreads vs Swedish government bonds


Source: Bloomberg (Mid-

Swaps to Benchmark)



FUNDING PROGRAMMES

USD benchmark programme


• Strategic funding programme.

• 1-2 issues per year (auctioned public offerings).

Target BM size USD ~1.5 bn. RegS and 144A.

• Eligible as collateral and for repos with the

Riksbank (Sweden’s CB), ECB, Fed and central

banks of Australia, Singapore and Switzerland.

ISIN (RegS) Maturity Coupon Outstanding

XS0919401678 15 Jun, 2016 0.500% USD 2.35 bn

XS0981932279 13 Dec, 2016 0.875% USD 1.25 bn

XS0745301258 13 Feb, 2017 1.625% USD 1.00 bn

XS1053517394 11 Apr, 2017 1.000% USD 1.00 bn

XS0847832267 24 Oct, 2017 1.000% USD 1.75 bn

XS1173233237 29 Jan, 2018 1.000% USD 1.25 bn

XS1114373274 12 Nov, 2019 2.000% USD 1.00 bn

Distribution statistics $1.25bn, issued in Jan 2015

By geography

By investor type



USD BENCHMARK PROGRAMME

USD Pricing comparables


So

urc

e: B

ofA

ML

/Blo

om

be

rg



USD BENCHMARK PROGRAMME

Spreads vs US Treasuries


Source: Bloomberg



FUNDING

Floating rate notes


• Opportunistic funding – reverse inquiries.

Private placements and club deals.

• Target maturities 2-3 years, can do up to 10.

ISIN Maturity Outstanding

XS1238251448 28 May 2019 USD 500m

XS1144483978 3 Dec 2018 USD 500m

XS1087838188 15 Jan 2016 USD 300m

XS0918632356 17 Oct 2015 USD 500m

XS0969181196 1 Oct 2015 USD 150m

XS0836466598 1 Oct 2015 USD 650m



KOMMUNINVEST

Summary


• AAA/Aaa, “closest proxy” to Swedish sovereign risk.

0% risk-weighted.

• Explicit, irrevocable, unlimited, joint and several guarantee by

member local governments. Constitutional right for members

to levy income tax.

• Prudent risk management, significant high-quality liquidity

reserve and access to central bank funding.

• Accepted as collateral and repo with numerous central banks.

In Sweden, eligible as Level 1 assets with 100% weighting in

LCR calculation.

• Equal to Swedish government bonds from a domestic

regulatory risk perspective*.

* Clarification letter from Swedish FSA is included in the Kommuninvest Investor Factbook


Photo

: H

enrik T

rygg,

ImageB

ankS

weden

The Swedish economy




Forecast for the Swedish Economy


Source: National Institute of Economic Research, NIER, ”The Swedish Economy”, August 2015

• One of the few countries with triple AAA-rating & stable outlook.

• Low levels of public sector debt, one of Europe’s strongest economies.

• Strong institutional framework guaranteeing balanced public budgets.

NIER forecast, August 2015 2014 2015 2016 2017

GDP, working day adjusted, % 2.3 3.0 3.1 2.6

Employment growth, % 1.4 1.1 1.4 1.6

Unemployment, % 7.9 7.7 7.5 7.0

Inflation, CPI, % -0.2 0.1 1.2 2.2

Inflation with fixed interest rate, CPIF, % 0.5 0.9 1.6 1.7

Repo rate (at year-end, %) 0.0 -0.40 -0.25 0.75

General government net lending, % of

GDP -1.9 -1.5 -1.0 -0.5

General government gross debt

(Maastricht debt), % of GDP 43.8 43.7 42.8 42.3


Annual growth mortgage lending (%)


Containing housing market risks


LTVs and mortgages (% of disp. income)

Loan-to-Value ratios, new loans (%)

Sourc

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Sta

tistics S

weden,

Jam

2015

Loan-to-Value ratios, mortgage stock (%)

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Sweden not burdened by EU bailouts


EU member, eurozone member

EU member, non-eurozone member

Non EU country

Sweden is not a member of the eurozone, because the

"no" vote prevailed in the 2003 referendum. No new

referendum is planned.

Therefore, Sweden has not participated with credits

through the European Stability Mechanism, ESM (nor its

predecessors EFSF and EFSM)*.

However, Sweden has made voluntary bailout

commitments (bilateral loans), to support fellow European

countries:

• Iceland EUR 495m (2008), 495m paid out, 205m

outstanding after two early prepayments.

• Latvia EUR 720m (2009), terminated, not paid out

• Ireland SEK 600m (2010), 300m paid out

* Sweden’s commitments are limited to:

1) its share, 3.1%, of the guarantee arrangements of the ESM /

EFSM loan facilities.

2) its quota share of the financial support provided by IMF, the

International Monetary Fund. Sweden’s quota is SEK 25bn. There

are also additional commitments to the IMF, capped at SEK 45bn.


Photo

: U

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weden.s

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Public sector system




A recognised welfare state


Social equality

Co-operation

Quality of life

Responsibility

Tax revenue as percentage of GDP, 2013

The world’s top

countries

1. Denmark

2. Sweden

3. Switzerland

4. Norway

5. Finland

6. Netherlands

Source: Tallberg Foundation,

compilation of 16 recognized ranking

lists (human development,

democracy, enterprise, environment,

education, competitiveness, etc)

Pic

ture

s: L

en

a G

ran

efe

lt, H

en

rik T

ryg

g,

Hen

rik T

ryg

g,

Le

na

Gra

ne

felt/I

ma

ge

Ban

k S

we

de

n

Source: OECD database, January 2015



Net borrowing increase recorded in 2013 and 2014 mainly due to on-lending

from the Swedish National Debt Office to the Riksbank, to increase the

Riksbank’s currency reserve. Official central govt. debt/GDP forecast for 2015

is 35 percent, including on-lending to the Riksbank and money market assets.

Adjusting for these items, the debt forecast is 29 percent of GDP.


Sovereign debt level low and stable


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Local government finances

Aggregate income statement 2014-2018

SEK Billion in current prices unless otherwise stated

Out-

come Forecast Calculation

2014 2015 2016 2017 2018

Income from activities* 175 184 189 198 209

Expenses from activities -868 -907 -951 -997 -1,047

Depreciation -28 -30 -32 -34 -36

Net expenses from activities -721 -753 -794 -833 -875

Tax revenue 602 636 672 708 749

Gen gov grants and

equalisation 127 127 128 133 139

Net financial income** 6 2 3 0 -4

Net income before

extraordinary items 14 11 8 8 9

Share of taxes and grants % 1.9 1.5 1.0 1.0 1.0

*The non-recurring effect of repayments of AFA premiums is included with SEK 5

bn for 2015.

0

50

100

150

200

250

20042005200620072008200920102011201220132014

Municipalities distributed by result in % of income from taxes

and state grants

Deficit Result 0 to 2 % Result > 2 %

Source: Swedish Association of Local

Authorities and Regions, “The Economy Report,

April 2015”


Photo

: Im

ageB

ankS

weden

Kommuninvest



KOMMUNINVEST

Strategic framework

Local government borrowing

• Investment needs in municipal services and infrastructure fuel

increase in local government borrowing.

• Expected annual growth rate in local government borrowing: 7

percent until 2017. (2011-2013 average: 7.6 percent.)

Kommuninvest strategic targets

Customer Satisfaction Index

Employee Satisfaction Index

Investor Satisfaction Index & efficiency in funding



KOMMUNINVEST

Legal structure

Ultimate owners

Ownership association

Credit market company



KOMMUNINVEST

Surplus distribution model


Key dates 2013-2015

18 April, 2013 AGM Kommuninvest Cooperative

Society. SEK 778.5 mn decided in refunds and interest

to members. Decision on SEK 768.0 mn in new capital

contributions.

10 April, 2014 AGM Kommuninvest Cooperative

Society decided on:

- Distribution of surplus to members (SEK 696.5 mn)

and new capital contributions (SEK 696.5 mn).

- Amendments to articles of association, including

new minimum requirement for contribution capital

and new possible capital formats (leverage ratio

preparation).

April, 2015 Members to make second and ratifying

decision on amendments to articles of association, and

decide on refunds and interest to members & capital

contributions.



By rating category

By country

KOMMUNINVEST

Liquidity reserve, 30 June 2015


By issuer category



KOMMUNINVEST

Regulations compliance


Source: the Riksbank and Kommuninvest



KOMMUNINVEST AND THE LIQUIDITY COVERAGE RATIO

High Quality assets

Equal to the Swedish sovereign

Swedish constitution, article 1: ”Swedish democracy is founded on the free formation of opinion and on universal

and equal suffrage. It is realised through a representative and parliamentary form of government and through local

self-government.”

Principles governing the organisation and working procedures of local authorities and local taxation are adopted by

law, the Government may not adopt provisions which relate to the Riksdag – the supreme body – or authorities

under the Riksdag. Nor may the Government adopt provisions which relate to local taxation.

Explicitly guaranteed by 280 Swedish local governments (SLGs)

All bonds are guaranteed until maturity through a joint and several, explicit and irrevocable guarantee. The

guarantee is signed by the 272 municipalities and 8 county councils that own Kommuninvest.

i. SLGs cannot be declared bankrupt (court decision in Investor Factbook)

ii. Guarantee is valid (legal opinion in Investor Factbook)

iii. SLGs are entitled to enter into guarantee arrangement (see Investor Factbook)

KI bonds are treated as sovereign risk (0 % risk weight, according to Swedish FSA1.

Bonds are LCR Level 1 eligible in EU, UK (proposed) and Switzerland, from 2015.

Accepted as collateral with numerous central banks, increasingly used in repo

transactions globally.

Monetary policy counterparty to the Riksbank. Member of Riksbank clearing and

payment system, RIX.

1) Clarification letter from Swedish FSA, Finansinspektionen, included in Investor Factbook



KOMMUNINVEST AND THE LIQUIDITY COVERAGE RATIO

Liquid Assets

• Global investor base, focus on central banks and official institutions.

Eligilibity as LCR Level 1 has broadened investor appeal to include bank

treasuries.

• Outstanding USD benchmark bond curve exceeding USD 10 bn – strategic

funding programme.

• Ongoing relations with many of the world’s largest investment banks, who

quote prices in Kommuninvest paper.

• Eligible as collateral with NasdaqOMX.

• Eligible as collateral with increasing numbers of central banks, including the

Federal Reserve. As a result, Kommuninvest USD benchmark bonds are

reputedly being used in the repo market.

• AAA rating reflects, among other things, rating agencies’ views on

Kommuninvest refinancing capabilities; e.g. the liquidity of securities issued.


Photo

: O

la E

ricson/im

agebank.s

weden.s

e

Securities classification

– Sweden



SECURITIES CLASSIFICATION | SWEDEN

Riksbank – fixed rate notes

Kommuninvest in liquidity class 2

The Swedish Central Bank (Riksbanken) accepts Kommuninvest’s

SEK-denominated bonds as collateral with the following haircuts for

price risk. Also other currencies, with haircut for currency risk.

Time to maturity Kommuninvest

(liquidity class 2)

Swedish Govt. Bond

(liquidity class 1)

0-3 yrs 3.0% 3.0%

3-5 yrs 5.0% 4.0%

5-7 yrs 7.0% 5.0%

7-10 yrs 10.0% 6.0%

>10 yrs 15.0% 7.0%




Riksbank – floating rate notes

Kommuninvest in liquidity class 2

The Swedish Central Bank (Riksbanken) accepts Kommuninvest’s

SEK-denominated bonds as collateral with the following haircuts for

price risk. Also other currencies, with haircut for currency risk.


(liquidity class 2)

Swedish Govt. Bond

(liquidity class 1)

0-3 yrs 3.0% 1.0%

3-5 yrs 4.0% 2.0%

5-7 yrs 6.0% 5.0%

7-10 yrs 10.0% 6.0%

>10 yrs 14.0% 7.0%




Nasdaq OMX – category 2

Valued as Swedish government bonds

“Swedish Securities, category 1: Swedish government bills and fixed rate, unstructured and

dated government bonds denominated in SEK. Swedish index linked bonds denominated in

SEK are also eligible as collateral.

Swedish Securities, category 2: Fixed rate and unstructured bonds issued by

Kommuninvest of Sweden which fall within liquidity class 2 as classified by the Riksbank

(Sweden’s central bank) and are denominated in SEK.”

Note: Nasdaq OMX does not accept floating rate notes as collateral.


(category 2)

Swedish Govt. Bond

(liquidity class 1)

0-5 yrs Value 95% Value 95%

5-10 yrs Value 93% Value 93%

>10 yrs Value 90% Value 90%

Maximum amount No limit if through Margin

Requirement Account: additional

10% haircut if only KI bonds used

as collateral. If through custodian,

limit is SEK 1bn per issuer.

No limit




Finansinspektionen (Swedish FSA)

According to the Swedish Financial Supervisory Authority,

Kommuninvest bonds are equal to government bonds when calculating

the liquidity coverage ratio, LCR1.

Bonds issued by Kommuninvest are considered to be Level 1 assets

and are not subject to a haircut under the LCR, provided that the bonds

possess certain fundamental and market-related characteristics.

Kommuninvest’s Swedish Benchmark Programme and USD

benchmark bonds meet the requirements.

1) Finansinspektionen, Beslutspromemoria 2012-11-13, FI Dnr 11-13136 – IN SWEDISH ONLY.

TRANSLATED SECTIONS AVAILABLE IN KOMMUNINVEST INVESTOR FACTBOOK.

See also Finansinspektionen’s Regulatory Code 2012:6, published in December 2012 (AVAILABLE IN

KOMMUNINVEST INVESTOR FACTBOOK, and Basel Committee on Banking Supervision, “Basel III: The

Liquidity Coverage Ratio and liquidity risk monitoring tools”, January 2013


Photo

: Johan A

lp,

ImageB

ankS

weden

Risk management




KOMMUNINVEST

Risk management


Market risk

Interest rate risk

Strict hedging principles for lending and

funding transactions. Interest rate risk is kept

at a minimum.

Exchange risk

All currency exposure hedged on asset &

liability basis to SEK, USD and EUR.

Refinancing risk

Diversified funding sources limit risk.

Liquidity risk

• The liquidity reserve has to be between

20-40% of the lending.

• Kommuninvest is a monetary policy

counterparty to Sweden’s central bank, the

Riksbank.

Credit risk

• Lending to members and companies

guaranteed by members only.

• Local governments have unlimited right

to set income tax rates.

• Strict methods for assessing and

analyzing applications for membership.

• Each member’s credit monitored at

least twice yearly.

• A local government cannot be declared

bankrupt.

• Liquidity invested in highly rated assets

only: 0 or 20% risk-weight.

• Strategy to limit credit risk relating to

derivatives: ratings restrictions on

derivative counterparties and collateral

agreements. Lowest A/A2-rating without

collateral agreement.



• Day-to-day follow-up of exposures

• Follow-up of specific municipalities

• Member and sector follow-up twice a year

• Continuous follow-up required if risk model

classification so indicates

Risk monitoring bodies (micro)

• Lending Group

• Risk & Analysis Group

• Credit Group

• CEO

• Board of the Company

Risk monitoring bodies (macro)

• Lending Group

• Risk & Analysis Group

• Credit Research & Finance Committee

• Board of the Company (sets lending limit upon

membership approval and reviews it yearly)

• Board of the Cooperative Society (approves

membership application)

Upon membership application | Throughout membership

Liquidity

preparedness

Historical

profits Financial

capacity

Development

potential Activities

with risks

Assessment criteria pre and post

membership approval

• Decision to offer membership is

taken by the Board of Directors

of the Kommuninvest

Cooperative Society.

• Fundamental requirement: The

municipality must be able to

meet its obligations as a

borrower and a guarantor.

The full analysis is always

based on a qualitative &

quantitative assessment,

taking into account the group

perspective, e.g. considering

growth opportunities,

regional/local economic

activity, financial sustainability

and surplus / deficit values in

the balance sheet.

KOMMUNINVEST

Credit analysis in lending operations

Lending to Swedish local governments is 0% risk-weighted from a capital adequacy

perspective. No Swedish local government has ever defaulted on a payment commitment.



CREDIT ANALYS | LENDING

Credit model – risk factor scale

Quantitative model based on 11 key ratios Member key ratios analysed against both the member’s own trend and the average for similar members.

Population growth Current ratio Government grants Net debt

Net cost Commitments Loan debts Tax

Solvency incl. pension

commitments

Results before

extraordinary items

Vacancy rates, municipal

housing company

From excellent (risk factor 0-3) to

“watch list” (risk factor 8.5-13)



CREDIT ANALYS | LENDING

KI risk factor and lending limits

Lending limit Kommuninvest’s decision on the highest acceptable net

debt level of a member, including items “below the line”,

e.g. pension commitments. General limit set at SEK 125,000

per inhabitant for 2015, equivalent to 32 % of Sweden’s GDP.

K-Max Amount that member can borrow from Kommuninvest (K-Max)

= Kommuninvest’s lending limit – member’s net debt

Risk factor 0–3.0 Borrowing can be made up to 100% of K-Max

Risk factor 3.5–6.0 Borrowing generally limited to 75% of K-Max

Risk factor 6.5–8.0 Borrowing generally limited to 50% of K-Max

Risk factor 8.5–13 Borrowing generally limited to 50% of K-Max

Member put on watch-list, discussions initiated

Access to new loans can be restricted Special limit

Some members can support a higher lending limit, due to significant income from the

municipal energy company, surplus values in the housing company or other. Kommuninvest

places higher demands on such members and they are also monitored more closely.



0

10

20

30

40

50

60

Number of

municipalities

Net debt =

+ Loan debt

+ Pension liability

+ Provisions

- Cash

- Investments in liquid assets

Source: Kommuninvest

KOMMUNINVEST

Municipal net debt, per citizen in SEK



Mr. Anders Gånge Head of Funding & Treasury

Tel: +46 (0)10 470 87 12

[email protected]

KOMMUNINVEST

Contacts


Mr. Carl-Henrik Arosenius Head of Investor Relations

Tel: +46 (0)10 470 88 81

[email protected]

Mr. Per Adolfsson Funding Officer

Tel: +46 (0)10 470 88 66

[email protected]

Ms. Maria Viimne Deputy CEO

Tel: +46 (0)10 470 87 11

[email protected]

Mr. Karl Aigéus Funding Officer

Tel: +46 (0)10 470 88 84

[email protected]

Investor Relations – [email protected]

Mr. Björn Bergstrand Senior Investor Relations Manager

Tel: +46 (0)10 470 87 31

[email protected]

Mr. Kanichiro Hirata Senior Advisor, Japan/Asia Rep.

Tel: +81 90 2758 0222

[email protected]

Funding – [email protected]

Mr. Tobias Landström Senior Funding Officer

Tel: +46 (0)10 470 88 83

[email protected]

Ms. Ulrika Gonzalez Hedqvist Senior Funding Officer

Tel: +46 (0)10 470 88 82

[email protected]



The Kommuninvest Investor

Factbook contains in-depth

information material on

Kommuninvest and the Swedish

local government sector, including

financial reports, rating reports

and legal documentation. The

Factbook is specifically designed

to facilitate investor/counterparty

credit approval and review

processes.

All documents included in the

Factbook are available for download at

Kommuninvest’s website

www.kommuninvest.org

Investor Relations

Financial information.

KOMMUNINVEST

Investor Factbook

http://www.kommuninvest.org/


Additional information


Kommuninvest: www.kommuninvest.org

Swedish Government: http://www.sweden.gov.se/

(loans to other countries: http://www.government.se/sb/d/3323/a/157255 )

The Swedish Central Bank, the Riksbank – financial stability reports:

http://www.riksbank.se/en/Financial-stability/ collateral information:

http://www.riksbank.se/en/Financial-stability/The-RIX-payment-system/Collateral/

The National Institute of Economic Research – economic surveys and forecasts

for the Swedish economy: www.konj.se

The Swedish Financial Supervisory Authority – risk and supervision reports:

http://www.finansinspektionen.se/Folder-EN/Startpage/Supervision/Reports/

Swedish Association of Local Authorities and Regions – publications and reports:

http://english.skl.se/publications_and_reports

http://www.kommuninvest.org/

http://www.sweden.gov.se/

http://www.sweden.gov.se/

http://www.government.se/sb/d/3323/a/157255

http://www.government.se/sb/d/3323/a/157255

http://www.riksbank.se/en/Financial-stability/















http://www.konj.se/





http://english.skl.se/publications_and_reports


version: 30 september 2015 kommuninvest …...2015/09/30 · u21 national higher education systems...

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