Federal State of Saxony-Anhalt

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Federal State of Saxony-Anhalt Capital Market Presentation Federal State of Saxony-Anhalt May 2017 Content Chapter 1 Overview Saxony-Anhalt Chapter 2 Strong constitutional framework of Germany Chapter 3 Saxony-Anhalt – A strong credit Chapter 4 Debt Management - flexible, investor focused, anticipatory strategy Chapter 5 Saxony-Anhalt‘s Unique Value Proposition Contacts 2 Chapter 1 Overview Saxony-Anhalt The Federal and State Levels of Government in Germany Key facts: Capital: Magdeburg Airport: International Airport Leipzig-Halle Saxony-Anhalt Key figures Germany 20,452 km² Area 357,168 km² (6% of German area) 2.3mn inhabitants Population 81.5mn inhabitants (3% of German inhabitants) EUR 56,378mn GDP in 2016 EUR 3,132,670mn (1.9% of Germany) (in current prices) EUR 57,633 GDP per EUR 70,437 (80% of Germany) employee in 2016 +1.0% GDP growth rate +1.9% in 2016 9.6 % Unemployment 6.1 % rate in 2016 Since 2012 Balanced budget Since 2014 Since 2012 Debt redemptions - Christian Democrats, Government Christian Social Democrats Democrats and and Green Party Social Democrats since 2016 since 2013 4 Well Diversified Economy Gross Value Added (2015 at current prices) by sector in the State and Germany 35 30 25 20 15 10 5 0 Agriculture, forestry Production Construction Commerce, tourism Financial institutions, Public and private and fishing and transportation real estate and services business related services State of Saxony Anhalt Germany Key contributors to the State’s GDP The most important segments of the manufacturing sector are food, chemicals and metal processing and metal manufacturing. Food Industry Chemical Industry Metal Processing and Manufacturing Contributed ~16% of total turnover of Synthetic fibre was first developed and Industry State’s manufacturing sector last year first colour film was produced in the Primarily small and medium enterprises Manufacturing Productivity measured by revenue per State engaged in processing metals and employee is above German average As part of the State’s restructuring the manufacturing metal products such as chemical industry continues to improve light metals for the automobile industry its competitive edge Financial Institutions, Real Estate and Business Related Services Tourism The sector has taken a leading role in the development of economic growth Based in the heart of the German nation with Services since 1990 its rich cultural heritage the State offers Besides the growth in real estate and business related activities driven by the significant potential to grow this industry structural change initiated by the State, financial institutions contributed significantly to the GDP of the State 5 Chapter 2 Strong constitutional framework of Germany The Federal and State Levels of Government in Germany Constitutional principles Division of constitutional responsibilities Germany is a federal republic, consisting of 2 concurrent levels of government: States Federal Level state level (“Länder”) federal level (“Bund”) – Education system – Defense & foreign affairs German States – Sovereigns within the German Constitution – Police – Banking The 16 States signed the German Constitution. In addition to that they all have – Judicial system Primary Primary – Trade policy authority – Municipal affairs legislative an own parliament, courts and government and also their own Constitution – Social insurance (German constitution overrules states Constitutions). They are autonomous and independent with regard to their budgets. – Tax legislation Allegiance to the federation (“Bundestreue”) – Public service The federal and state governments are under an obligation to respect their Shared – Regional development responsibility mutual interests, to co-operate in the performance of the tasks assigned to them by the Constitution and to render mutual assistance. Federal Equalisation System At federal level most laws (e.g. all laws in The federal equalisation system (enshrined in the constitution and regulated connection with states responsibilities or by law) is an important instrument for apportioning the tax revenues to the shared responsibilities or financial matters of States. It ensures sufficient financial strength of all states and provides equal the States) have to pass the two houses of standards of living for all citizens in Germany. parliament – the German Federal Parliament Review of the Equalisation System (Bundestag) and the Parliament of the The federal and state governments have agreed in principal on a reform of the Governments of the States, the German federal equalisation system. All States stand to benefit from the new rules, which Council (Bundesrat) . shall take effect in 2020 (legislation pending). Zero Borrowing Rule (“debt brake”) The states have to reduce their deficit to zero by 2020, the Bund to not more than 0.35% of GDP by 2016. 7 Chapter 3 Saxony-Anhalt – A strong credit Rating Agency Review of the State of Saxony Anhalt Rated Aa1, Stable Outlook Rated AA+ , Stable Outlook Rated AAA , Stable Outlook Since December 2006 Since December 2010 Since March1999 V Strong ongoing support from the German financial equalisation system V Strong budgetary performance and low contingent liabilities V Sound debt management, with very good capital markets access The ratings of the State of Saxony Anhalt reflect the stability and sustainability of the solidarity mechanism Strong Support from for German Laender. According to German federalism, underpinned by the constitution, the central German Financial “ government (Bund) and the states (Laender) are jointly responsible for supporting a state in financial Equalisation System distress…. Fitch July 2016 Strong Budgetary In our opinion, Saxony Anhalt’s budgetary performance is very strong and we expect the State to maintain ” Performance “ surpluses after capital accounts in our base-case scenario until 2018.….. S&P October 2016 The Land did not take on any new debt in recent years. Over the medium term it plans to continue with ” Sound Debt annual debt repayments….. Management “ Moody’s December 2016 9 Investor Presentation 9 ” Main Budget Figures Net New Borrowing and annual additions to provisions Operating balance (in EUR mn) (in EUR mn) 12.000 1.000 400 900 10.000 300 800 long term concepts 700 8.000 200 600 100 6.000 500 400 4.000 0 300 200 -100 2.000 100 stabilisation -200 0 0 2012 2013 2014 2015 2016 2017* 2018* 2019* 2020* 2021* 2012 2013 2014 2015 2016 2017 2018 2019 Additions to provisions Net New Borrowings * preliminary data Operating Revenue Operating Expenditure Operating Balance (right scale) The established provision schemes by law Budget consolidation by successfully implementing will continue, such as a fully funded pension structural reforms, a strict expenditure control based fund founded in 2006 for new civil servants. on the consolidation of its number of personnel and good performance of tax revenues. Debt redemption started in 2012. Therefore it is planned to stabilize the debt redemption The annual achieved operating balance enables the at 100m from 2017 onwards. State to necessary capital expenditures to improve its location profile! 10 Chapter 4 Debt Management - flexible, investor focused, anticipatory strategy State’s Debt Capital Market Strategy Anticipatory issuer Debt Issuance Program (incl. • 1998 - establish MTN & Commercial Paper foreign currency issuances & Program (*) interest rate structures) • 1998 - initial Rating from S&P followed by Moody’s and Fitch (*) • 1998 - inaugural benchmark issue (*) Liquid Benchmark Bonds in Strong product capabilities EUR & USD on a regular basis • 1999 - 1st issue in foreign currency (*) • 2004 - 1st issue of SUKUK Trust Certificate (*) Commercial Paper Program ( ) (including foreign currency * „Pioneer“ among the States issuances) Promissory notes & Private placements Innovation and Investor-focus is driving by States approach to maximize name-recognition and flexibility of Broad range of debt products funding sources especially after financial crisis 12 Investor Presentation 12 Saxony-Anhalt Debt Management Products Gross Borrowing The strategic mix of all instruments 3.000 enables Saxony- Anhalt to approach debt management 2.500 in a flexible manner, especially in terms of investor demands 2.000 Consequently broaden investor 1.500 in€ base Clear investor 1.000 focus- strong product capabilities 500 All structures and all foreign currencies are hedged in fix - 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 or floating EUR plan plan plan plan 13 Saxony-Anhalt Debt Management Products Debt Maturity Profile Annual refinancing 8,000 ratio between 10% 7,000 to 15% of total debt 6,000 Barbell-Strategy to address the low 5,000 interest rate environment and 4,000 inmn € steep €-curve 3,000 2,000 1,000 0,000 1y - 4y 5y -7y 8y-10y > 10y Maturity 14 Chapter 5 State of Saxony-Anhalt‘s Unique Value Proposition Key considerations • Embedded in strongest equalisation system globally among German States and the Federal Republic to support revenue and investment support Access to a strong support system • Saxony-Anhalt ranks above German average in terms of budget performance • Financial surplus each year since 2012 • Building up provisions for future liabilities (e.g. pensions funds, short tax fall reserve) Good budget performance • Access to multiple low cost funding avenues • Saxony-Anhalt is strongly committed to its investor focused and flexible funding strategy, including regular liquid benchmark bonds Innovative and flexible issuer Well• Fitchtracked (AAA) and –outperformance stable
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