Elep ephant hant Book 3Q 3Q 15 Agenda Macro Economic Backdrop - - PowerPoint PPT Presentation

Elep ephant hant Book 3Q 3Q15

Agenda

• Macro Economic Backdrop
• Namibian Macro Economic Environment
• Fixed Income

NAMIBIA

(1.0)

• 1.0

2.0 3.0 4.0 5.0 6.0 7.0 8.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 PERCENT

REAL GROWTH RATES

Namibia South Africa

MAJOR DECOUPLING SINCE 2009 Decoupling driven by three key factors

NAMIBIA

INTEREST RATES GOVERN- MENT SPENDING FOREIGN DIRECT INVESTMENT

N$67bn

Budget, 2015/16

N$10bn

NET PSCE ISSUANCE, 2014

N$13bn

NET FDI, 2014

Interest Rates

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Repo Prime

• Interest rates increasing and expected to continue to do so, albeit gradually.
• Still low by historic standards
• Cheap credit still readily available to businesses and individuals

Government Expenditure

23,433 43,659

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 N$ Million Personnel Expenditure Other Expenditure Growth (RHS)

• Sizable increase in Govt expenditure since 2011
• Close to 40% in personnel expenditure (directly)
• Exceptionally large increase in 2014/15
• Growth slowing in 2015

Macro Economic Backdrop

PSCE and PSCE Growth

0% 5% 10% 15% 20% 25% 30%

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Growth Rate (YoY) N$ Million Other Businesses Households PSCE Growth Businesses Growth Household Growth

Macro Economic Backdrop

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

• 1,000

2,000 3,000 4,000 5,000 6,000 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Percent Growth (YoY) N$ Million 12m Net Issuance Household Growth 12 per. Mov. Avg. (Household Growth)

Household Debt Issuance

Minerals

Beverage Production

Vehicle Sales

Unemployment

Unemployment levels improving, largely on account of current construction boom in Nam Results in large cash injections into local households, many of which have strong multipliers

National Household Income

0% 5% 10% 15% 20% 25% 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 N$ Million Gross Income Disposable Income Gross Income Growth (RHS) Disposable Income Growth (RHS)

What all this means: Household remain strong consumers, but buying power growth slowing

Imbalances

Macro Economic Backdrop

4.6% 3.0%

• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Differential SA CPI NAM CPI

Namibian and South African Inflation

Macro Economic Backdrop

July 2015 (YoY) Inflation 12 Month Average Inflation Water supply, sewerage service and refuse collection 10.8% 11.6% Public transportation services 0.3% 8.5% Pre-primary education (ages 2 to 6 years) 6.7% 7.6% Electricity gas and other fuels 5.7% 7.6% Tertiary education 4.8% 7.3% NCPI 3.0% 4.3% Rental payments for dwellings (both owners and renters) 1.5% 1.8% Selected Services Inflation Levels

Macro Economic Backdrop

500 1,000 1,500 2,000 2,500

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 January June November April September February July December May October March August January June November April September February July December May October March August January 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 US Million N$ Million Reserves (NAD) Reserves (USD) 12 per. Mov. Avg. (Reserves (NAD)) 12 per. Mov. Avg. (Reserves (USD))

International Reserves

Macro Economic Backdrop

(2,000)

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 N$ Million

Central Government Deposits (Cash Balances)

BON Commercial Banks

Government Deposits

Macro economic backdrop

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 N$ Million N$ Million Broad money liabilities (M2) Currency in circulation (M0) RHS Monetary base (MB) RHS

Money Supply

Macro Economic Backdrop

• 5

10 15 20 25 30 35 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Money Multiplier (x) Money Multiplier (M2/MB) Money Multiplier (M2/M0)

Money Multiplier

Macro Economic Backdrop

80.0% 82.0% 84.0% 86.0% 88.0% 90.0% 92.0% 94.0% 96.0% 98.0% 100.0%

Banking sector loan-to-deposit ratio

Macro Economic Backdrop

(1,000)

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 N$ Million Data Sea Adj.

Banking sector liquidity position

Macro Economic Backdrop

0% 5% 10% 15% 20% 25% 30%

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 2008 2009 2010 2011 2012 2013 2014 2015 Debt to GDP N$ Million Foreign debt stock Domestic debt stock Debt to GDP (RHS)

Government Debt and Debt to GDP

Budget Deficit

• 11,000
• 10,000
• 9,000
• 8,000
• 7,000
• 6,000
• 5,000
• 4,000
• 3,000
• 2,000
• 1,000
• 2013/14

2014/15 2015/16 2016/17 2017/18

• 7.00%
• 6.00%
• 5.00%
• 4.00%
• 3.00%
• 2.00%
• 1.00%

0.00%

Budget Deficit

Budget balance Budget balance as % of GDP

Fixed income

Fixed Income

Fixed Income Recap

• GC15 Redemption
• GC20, GC22, GC45 launched
• ZAR bond issuance

Fixed Income

GC15 Redemption

• Outstanding Nominal N$995m
• Coupon payments to be reinvested
• N$895m allocated in corresponding auction
• Thus not all of the proceeds from the GC15 redemption were reinvested
• Last time GC18 was issued
• Last time GC21 was issued
• This leaves the GC20 as the only on the run bond in the 5 year space

Fixed Income

GC20 and GC22 Issuance

• Issued 29 April
• Neither was fully subscribed at the initial auction
• GC20 – 8.25% coupon – N$33.75m allocated at initial auction (N$60m available)
• GC22 – 8.75% coupon – NS38.80m allocated at initial auction (N$60m available)
• GC20 now only on the run issue in the 5yr space
• Average debt maturity thus increasing
• 5 – 10 year space crowded, GC21, GC22, GC24, and GC25
• GC22 has been undersubscribed in all subsequent auctions
• Low demand for GC24 and GC25 as well
• Pricing in this space is unattractive at present

Fixed Income

GC45

• Launched on the 21st of May
• 9.85% coupon
• All auctions have been oversubscribed thus far
• Strong demand on the long end

ZAR Bond Issuance

• Weak local demand at present
• Tap of current NAM01 issue for N$500m
• Issued new 5yr NAM02 for a further N$300m
• Issued at 180bp and 165bp respectively
• Demand was strong at these prices
• This should, over time, lead to the increase of local spreads

Fixed Income

Yield Curve

Fixed Income

Yield Curve

• Currently close to 80% of Namibian Government debt, excluding TBs,

lies within the 10 year part of the curve

• GC24, GC25, and GC27 are particularly unattractive at current spreads
• GC32 also suffers from a low spread at present
• GC21 spread is unattractive although the spread is negatively affected

by it being off the run and not trading on the secondary market

• At present the GC22 represents a lot of value compared to the other

bonds within the 5 – 10 year space

• Bank of Namibia has recently been reluctant to issue away from market

thus limiting spread movements on some issues

• This has exacerbated the mispricing in certain parts of the curve

Fixed Income

Spreads

• Spreads have widened over the 2nd quarter as expected
• Large increase in issuance due to the large proposed budget deficit did

not result in bond market participants moving spreads by as much as expected due to BoN reluctance to issue away from market

Fixed Income

Auction Results

• The second quarter of the year has been characterised by a drop in demand

for locally issued Government bonds

• Shortfall over the past 2.5yrs has more than doubled over past quarter
• Excluding GC15: Just over half of ~ N$1bn on offer during the quarter was

allocated

Primary Auction Bid-to-Cover Fixed Income

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 1-Jun-13 1-Jul-13 1-Aug-13 1-Sep-13 1-Oct-13 1-Nov-13 1-Dec-13 1-Jan-14 1-Feb-14 1-Mar-14 1-Apr-14 1-May-14 1-Jun-14 1-Jul-14 1-Aug-14 1-Sep-14 1-Oct-14 1-Nov-14 1-Dec-14 1-Jan-15 1-Feb-15 1-Mar-15 1-Apr-15 1-May-15 1-Jun-15

Bid/Offer versus Allocated/Offered

Bid/Offered Allocated/Offered 30 per. Mov. Avg. (Bid/Offered)

Fixed Income

Borrowing Plan

Fixed Income

IJG ALBI versus SA ALBI Total Return

• IJG ALBI total return – 8.87% (annualised)
• SA ALBI total return – 8.38% (annualised)