February 21, 2017
Hi, I’m Gadi Mayman, CEO of the Ontario Financing Authority. Thank you for joining me for the next few minutes.
Today I would like to discuss the release of the Province’s 2016–17 Third Quarter Finances and provide you with an update on this year’s borrowing program, including our third Green Bond.
Let’s start with the Province’s Third Quarter Finances.
The government is projecting a deficit of $1.9 billion in 2016–2017, an improvement of $2.4 billion compared to the 2016 Budget. Despite an uncertain global environment, Ontario’s economy continues to grow. Real GDP advanced by 0.7 per cent in the third quarter of 2016, led by growth in exports, household spending and housing investment. Ontario’s GDP growth continued to outpace that of Canada as a whole through 2016.
As a result of a lower deficit, and other adjustments, our total long term borrowing requirement for 2016–17 has now been completed at $24.6 billion compared to the $26.4 billion forecast in the 2016 Budget.
The government is projecting a net debt-to-GDP ratio of 38.3 per cent for 2016–17, an improvement compared to the 2016 Budget projection of 39.6 per cent. As you may recall, in the Public Accounts of Ontario 2015–2016 and the 2016 Ontario Economic Outlook and Fiscal Review or Fall Economic Statement, the Province had adopted the Auditor General of Ontario’s accounting interpretation for the treatment of net pension assets for 2015–16, which resulted in an impact over the outlook, including $2.2 billion in additional expense in 2016–17. To confirm the appropriate interpretation of public-sector accounting standards, the government established a Pension Asset Expert Advisory Panel in late 2016. The Panel recently released its report, including a recommendation that jointly-sponsored net pension assets be recognized on the Province’s financial statements. The Province has accepted the Panel’s advice and as a result, the pension adjustment has been reversed. This has resulted in lower net debt for 2016–17, which combined with stronger GDP growth in 2016 reduced the ratio from the Budget estimate.
Now let’s turn to the borrowing program.
Since my last update following the Province’s Fall Economic Statement and Fiscal Review in November, we have completed our 2016–17 long-term borrowing program with $24.6 billion, including $800 million in pre-borrowing for 2017–18. If market conditions are favorable, we will continue to pre-borrow for next year.
Let’s start with our foreign currency issues. A large portion of our recent borrowing was done through a highly successful, 5-year U.S. dollar deal for USD 2.5 billion on February 1. The deal was highly sought after, with a final book size of over USD 3.4 Billion. There was broad participation, particularly from Asia-Pacific investors who took 26 per cent of the deal, while European investors accounted for 13 per cent. As usual, North American investors accounted for the largest portion at 61 per cent. This was our third U.S. dollar deal for the 2016–17 fiscal year. The U.S. dollar market has remained an important source of funding for Ontario this year, with a total of $6.8 billion issued in U.S. dollars.
The remaining foreign currency borrowing included two Australian dollar re-openings of a 10-year bond issued in 2015, and a new 10-year Australian dollar issue and a subsequent re-opening.
Next, I’d like to talk about our domestic issues. Approximately $17.6 billion, or 72 per cent of this year’s borrowing, has been completed in Canadian dollars, primarily through 19 syndicated issues. Our most recent syndicated issue was a new 10-year benchmark of $1 billion. Other Canadian dollar issuance included floating rate notes, Ontario Savings Bonds, a bond auction, and a Green Bond issue.
Speaking of Green Bonds…
Last month, we successfully launched our third Green Bond, which was a re-opening of last year’s January 2023, 1.95% issue. The 6-year deal was very successful – we started off with a minimum size of $500 million, which then increased to $800 million to accommodate demand.
The Province continues to be a leader in the Canadian Dollar Green Bond market. Since we started the green bond program in 2013, I’ve been encouraged to see the number of Canadian dollar Green Bond investors grow, and this bond was no exception. Demand was largest from domestic Canadian investors highlighting the increasing number of Canadian investors with Green mandates and/or UN PRI Signatories.
Over 50 investors participated in the trade with interest driven by Asset Managers and with strong demand from Banks, Insurance Companies and Pensions as well. The bond will help fund 12 projects, with an emphasis on clean transportation and energy efficiency and conservation.
In all, we now have over $2 billion in Green Bonds outstanding.
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