Financial Status of Aichi Prefecture
October, 2012
Budget Management Division, Department of General Affairs, Aichi Prefecture 1 Contents Aichi Prefecture
1. Overview ……………….………………………….…………………….… 2
2 Fiscal Profile ……………………………………………………….….……. 7
3. Aichi Prefecture's Bond ….………………………….…………………….… 11
Highlight ………………………………………………………………….….… 17
1 2 Aichi Prefecture
1. Overview
2 3 Overview of Aichi Prefecture Aichi Prefecture
Aichi Prefecture, located in the central area of Japan, has the world’s leading automotive cluster and is home to Toyota Motor Corporation’s headquarters and major plants. It is one of Japan’s three metropolitan areas and is centered on the country’s fourth largest city, Nagoya. Aichi Prefecture
Nagoya Population of 2.27 million Toyota Head Office of Toyota Motor Corporation Tokyo Nagoya Port
Chubu Centrair Osaka International Airport Mikawa Port
Japan Tokyo Aichi Metropolis Prefecture Ranking Ranking Population 128,057 13,159 1 7,410 4 (in thousands) GDP 483.2 85.2 1 31.9 3 (trillions of yen) Production 289.1 8.2 12 38.2 1 (trillions of yen)
3 Economic Size of Aichi Prefecture 4 Aichi Prefecture
Third largest GDP in Japan after Tokyo and Osaka. It is comparable to that of a country in Europe and reflects a leading economic size also in Asia. While Japan’s population is on the decline, Aichi Prefecture’s population continues to rise.
2009 GDP of OECD Countries
(Billion U.S. dollars) Country GDP U.S.A. 13,863.6 Japan 5,044.4 China 4,990.2 Germany 3,298.6 France 2,624.5 South Korea 834.1
Austria 381.8 GDP Norway 370.7 Aichi 343.6 Prefecture
Greece 321.8 * Converted at the rate of USD1 = JPY100.46 Source: Statistics Bureau of the Ministry of Internal Affairs and Communications, Economic and Social Denmark 311.1 Research Institute of Cabinet Office, and Statistics Division of Aichi Prefectural Government
4 5 Industrial Structure of Aichi Aichi Prefecture Well-balanced industrial structure with manufacturing sector at the core. Has an overwhelming domestic share in manufacturing, placing No. 1 in terms of total shipments of manufactured goods for 34 consecutive years, and drives Japan’s manufacturing sector particularly the automotive industry.
Total Shipments of Manufactured Goods (FY2010)
(Trillion yen) 40.0
輸送用機器Transport その他Other equipment 35.0
30.0
25.0
20.0
15.0
10.0
5.0
沖縄鹿児宮崎大分熊本長崎佐賀福岡高知愛媛香川徳島山口広島岡山島根鳥取和歌奈良兵庫大阪京都滋賀三重愛知静岡岐阜長野山梨福井石川富山新潟神奈東京千葉埼玉群馬栃木茨城福島山形秋田宮城岩手青森北海 Mie Gifu Gifu Oita Oita Nara Aichi Akita Akita Saga Saga Iwate Iwate Fukui Kochi Kochi Kyoto Kyoto Shiga Shiga Chiba Tokyo Tokyo Tottori Tottori Ehime Ehime Osaka Hyogo Hyogo 島 山 川 Miyagi 道 Ibaraki Ibaraki Niigata Niigata Aomori Aomori Tochigi Gunma Gunma Nagano Toyama Toyama Kagawa Kagawa Saitama Saitama Fukuoka Ishikawa Miyazaki Okinawa Shimane Shimane Shizuoka Shizuoka Nagasaki Hokkaido Okayama Okayama Hiroshima Hiroshima Yamagata Kanagawa Kumamoto Kumamoto Tokushima Fukushima Yamanashi Yamanashi Wakayama Yamaguchi Kagoshima
(Source: “FY2010 Census of Manufacturers (summary)” issued by Ministry of Economy, Trade and Industry
5 6 Major Corporations Located in Aichi Prefecture Aichi Prefecture In the automotive sector, not only are the major plants of Toyota Motor Corporation located in Aichi, but also component manufacturers of all sizes including Denso — one of the world’s top companies — and small-and-midsize firms. Also located there are world-class machine tool manufacturers, aircraft manufacturers undertaking production of B787 wings, JR Tokai that operates the Shinkansen (Bullet Train) and more.
Machine tool Automobile (parts)
Aircraft Utility
6 7 Aichi Prefecture
2. Fiscal Profile
7 FY2011 Results of Ordinary Accounts 8 Aichi Prefecture
Local governments undertake municipal administration in Japan, and the size of a local government is comparable to that of a country under a federal system. Prefectures are engaged in a wide range of administrative services such as operating the police, running high schools and bearing the costs of elementary and junior high schools. Aichi Prefecture’s expenditures for FY2011 amounted to over 2.1 trillion yen. Aichi has continued to be in the black for 12 consecutive years despite the decline in tax revenue. (million yen)
FY2011 FY2010 Changes FY2011 FY2010 Changes
Local Tax 906,211 926,685 -20,474 Mandatory Expenditures 1,095,170 1,071,175 23,995
Personnel Local Transfer Tax 98,815 91,712 7,103 698,732 698,862 -130 Expenditures Local Allocation Tax 57,789 57,782 7 Debt Services 356,573 333,135 23,438 National Government 213,009 225,777 -12,768 Social Assistance Disbursements 39,865 39,178 687 Expenditures Local Government 422,641 477,434 -34,793 Borrowing Investment Expenditures 206,309 203,205 3,104
Other Revenues 462,321 387,003 75,318 Other Expenditures 843,173 875,584 -32,411
Total Revenues 2,160,786 2,166,393 -5,607 Total Expenditures 2,144,652 2,149,964 -5,312
Gross Balance 16,133 16,429 -296
Real Balance 6,541 7,951 -1,410
8 9 Aichi Prefecture’s Tax Revenue Base Aichi Prefecture
Aichi has one of Japan’s strongest tax revenue bases with corporate residence tax and corporate enterprise tax as the primary source, reflecting the economic strengths of the region.
FY2012 Local Tax Comparison (Initial Budget)
(Billion yen) 1,200
1,000 885
800
600
400
200
0 愛知県Aichi 大阪府Osaka Hokkaido 北海道 京都府Kyoto Okinawa 沖縄県 Prefectural 県平均 average
9 10 Financial Ratios Aichi Prefecture
Aichi continues to attain the country’s second highest financial strength index that measures the autonomy of local governments.
Financial Strength Index (FY2011 Initial Estimate)
Ranking Prefecture Financial Strength Index 1st Tokyo - 2nd Aichi 0.932 3rd Kanagawa 0.907 4th Chiba 0.747 5th Saitama 0.740 6th Osaka 0.720 7th Shizuoka 0.679 8th Ibaraki 0.591
Average 0.447
No. 2 in Japan since 1992
A financial strength index is an index that reflects the financial strength of a local government. It is derived by dividing basic financial revenue by basic financial demand. A financial strength index above 1 shows that financial resources exceed the amount of ordinary allocation tax and hence there is no tax allocation.
10 11 Aichi Prefecture
3. Aichi Prefecture’s Bond (APB)
11 12 Positioning of Aichi LGB in Japan Aichi Prefecture
Aichi has the third largest LGB issuing volume after Tokyo and Osaka and is one of Japan’s leading issuer of bonds even including government-affiliated organizations, financial institutions and business companies.
Major Issuing Bodies with Large Issuing Volume in Japan
(Billion yen) 0 200 400 600 800 1,000
JFM
BTMU
Tokyo 東京都
Osaka 大阪府
SMBC Mizuho Corporate Bank みずほCB Aichi 愛知県
JHF Kanagawa 神奈川県 Comparisons of domestic Central Nippon Expressway Co. straight bonds excluding JGB ＮＥＸＣＯ中日本 and government-guaranteed Japan Finance Corporation bonds. 日本政策金融公庫 ORIX Aichi Prefecture separately issues LGB worth 10 billion オリックス yen for individuals. Nomura Holdings
野村HD 12 13 FY2012 Public Offering Bond Issuance Plan Aichi Prefecture
Aichi Prefecture plans on issuing public offering bonds worth 470 billion yen in FY2012.
FY2012 Public Offering Bond Issuance Plan
（ 億円）
(Billion yen) April May June July August September October November December January February March Total
Joint-LGB 55555555555560
5-year LGB 20 20 20 60
10-year LGB202025202030202020202020255
20-year LGB 10 10 20
Flex term 65 65 Prefectural 5 510 resident bond Total 470
Concepts Underlying the Issuance Plan
Continue to monthly issue 10-year bonds as benchmark.
Issue a variety of bonds including 5-year and 20-year ones and bonds for prefectural residents.
Offer flex term bonds that do not set the term up front in order to secure flexibility in bond issuance in response to the needs of investors. 9 Respond to the needs for increased amount during marketing activities. 9 Respond to the needs for diversifying bond terms (Aichi has issued 2-year, 7-year, 15-year and 30-year bonds in the past).
13 14 Attractiveness relative to JGB(1) Aichi Prefecture
Aichi issues the core 10-year bonds monthly. In Japan, monthly issued bonds other than JGB and government guaranteed bonds are Tokyo Metropolitan LGB, Joint LGB and Aichi LGB only. Aichi LGB demonstrates a stable transition in spread relative to JGB.
10-Year Bond Spread Level
(bp) Even under unstable circumstances after the Great East Japan Earthquake in March (%) 2011, Aichi continued to issue bonds Spread Aichi LGB monthly while exploring new investment needs. JGB
％
FY 2009 FY 2010 FY 2011 FY2012
14 15 Attractiveness relative to JGB(2) Aichi Prefecture
While the low volatility of JGB attracts attention, Aichi LGB demonstrates stable volatility comparable to that of JGB on the markets.
Historical Volatility Trends (90 Days)
7 Aichi 10- 10-year U.S. 10-Year German 10-year JGB (%) 愛知県year LGB10 年 日本10年 米国Treasury10年 ドイツGovernment10年 Bonds Bonds 6
％ 5
4
3
2 Aichi performed stably
1
0 11/1 11/3 11/5 11/7 11/9 11/11 12/1 12/3 12/5 12/7
15 Ratings 16 Aichi Prefecture
To help investors make investment decisions, Aichi obtained ratings on its bonds from 3 rating agencies. Its ratings are the highest of Japanese local government bonds and are the same as JGB.
* On April 27, 2011, APB moved in line S&P AA- (negative*) with JGB, to negative outlook. Same as JGB
The rating continues to reflect stable independent revenue sources and steady financial administration results. Bond rating is the same as those for Japanese government bonds (JGB) and Tokyo Metropolitan bonds Hong Kong (Special Administrative Region) AAA Singapore (Republic of) AA+ USA、Greater London Authority、Paris (City of)
AA Vancouver (City of)
Aichi (Prefecture of)、Tokyo Metropolitan Government、Japan、China、Ontario (Province of)、JBIC（Japan AA- Bank for International Cooperation）、JFM（Japan Finance Organization for Municipalities)
A+ Israel (State of) Korea (Republic of) A Seoul Metropolitan Government、 A- Malaysia
(as of September 6,2012)
R&I AA+ (stable) Same as JGB JCR AAA Same as JGB
16 Highlights 17 Aichi Prefecture
Outstanding Economic and Industrial Platforms
One of the most highly populated prefectures in Japan with an economy whose size is comparable to that of a country. Outstanding concentration of industries: in addition to the automotive industry, aircraft and space, machine tool, and other industries.
Sustained fiscal soundness based on high financial capability
Prefecture with one of the highest levels of tax revenue in Japan
Firm and sound fiscal standing shown by the indicators of financial soundness
Aichi Prefecture’s Bond
Leading bond issuing entity in Japan: Issuance worth 470 billion yen planned for FY2012
Continuous monthly issuance of 10-year bonds as benchmark Received the highest rating of local government bonds comparable to that for Japanese government bonds (JGB)
17 18 Aichi Prefecture
Appendix
18 19 Characteristics of Japanese Local Government Bonds Aichi Prefecture Japanese local government bonds (LGB) are extremely safe under the regulatory framework described below, and there has never been any default in the past. Under BIS standards, the risk weight of Japanese LGB is 0% as with Japanese government bonds.
No Past Default of Japanese LGB Risk Weight under BIS Standards
1 Ample local government financial resources JGB 0% Aichi LGB 0% Strong taxation right. Government agency bonds 10%~20% The required funds are secured nationwide based on the fiscal plan of local governments developed by the state. Bank debenture bonds 20% Straight bonds 20% or more Local allocation tax system by which the state government allocates the amount of “fiscal demand – revenue”. Outline of Tax Exemption for Non-Residents, etc.
2 Bond issuance requires advance discussions with the state Procedure of tax exemption Starting in 2008, with the for nonresident In principle, bonds are issued only with the concurrence Article 5-2 Act on Special and approval of the state government. Measures Concerning Non-resident investor Taxation (Limited to the provisions related to QFI (i.e., Clear Stream, nonresidents and foreign Euro clear) 3 Monitoring system using financial soundness indicators corporations), the interest gains on LGBs owned by The Act on Assurance of Sound Financial Status of Local non-resident or foreign Specified book-entry transfer Governments was established in 2007 based on which corporations which settled institution, etc. (Sub- local governments are required to compute and disclose custodians) four indicators. by the book-entry system are exempted from withholding tax. Head of relevant tax office for Sub-custodians
19 20 Aichi Prefecture
Contact z Finance Group, Budget Management Division, Department of General Affairs z Tel.: +81-52-954-6045 (dial-in) z Fax: +81-52-971-4536 z E-mail: [email protected]
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