State of North Rhine-Westphalia Capital Markets Presentation. Mai 2018

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1 State of North Rhine-Westphalia Capital Markets Presentation Mai 2018

2 Bund and Länder Cooperative Federalism Federal System Germany is a Federal Republic, with two concurrent levels of government: Federation ("Bund") and States ("Länder"). Responsibilities of the Länder The Länder have their own legislative, judicial and executive powers. They are independent with regard to their budgets and play an active role in the federal legislative process. Zero Borrowing Rule ("Debt Brake") The German Constitution sets out that the Länder must eliminate structural budget deficits by Since 2016, the Bund must limit structural budget deficits to 0.35% of GDP. Federal Equalisation System Federal law provides that tax revenues must be shared between Bund and Länder in an equitable fashion in order to provide equal standards of living throughout the country. Allegiance to the Federation ("Bundestreue") Bund and Länder are under an obligation to share the administrative tasks and provide mutual assistance, including financial assistance in cases of extreme budgetary hardship. NRW DÜSSELDORF BERLIN 2

3 Bund and Länder Size and Structure of Budgets Länder (all), EUR 295bn Bund, EUR 325bn Other 16% Education 27% Other 17% Interest 8% Interest 13% Social security 46% General purpose grants to municipalities 14% Regional public transport 10% Law enforcement, police 14% Social welfare 11% General purpose grants to states 7% Transport 6% Defence etc. 11% Länder budgets reflect their responsibilities for education, law enforcement and infrastructure. The federal budget is dominated by expenditures for social security health, unemployment and retirement insurance. 3

4 Sustainability Strategy NRW 19 Fields of Action and 7 Focal Areas Climate protection and energy transition Sustainable business management Protection of natural resources Demographic change Social cohesion and participation Decent work fair labour Integration Sustainable fiscal policy Sustainable development of urban areas Sustainable mobility Sustainable consumption / Sustainable lifestyles Land cultivation Health One-world policy, European and international dimension Gender equality Universal accessibility and inclusion Sustainability in the municipalities (local agenda) Civic commitment/participation Education and science Environmental responsibility Regional, European and international dimension Engaged citizens Access to education and science Local sustainability agenda Gender mainstreaming Inclusion and social coherence 4

5 2030 Agenda for Sustainable Development Sustainable Development Goals (SDGs) 5

6 No. 1-6* Brazil Italy Canada Korea Russia Australia Spain Mexico Indonesia Turkey Netherlands NRW Saudi Arabia Switzerland Argentina Taiwan No. 23 One of the Top 20 Economies worldwide GDP 2017 [EUR bn] ,820 1,716 1,463 1,402 1,353 1,222 1,164 1, % services 28.4 % industry 0.4 % agriculture and forestry *USA, China, Japan, United Kingdom, India, France Sources: IMF April 2018, Statistical Office NRW 6

State of North Rhine-Westphalia Largest German State

Population 34,110 km² 17.9mn Unemployment Rate 7.

5bn GDP per capita EUR 38,645 Real Growth +1.

7 State of North Rhine-Westphalia Largest German State in Terms of Population and GDP NRW 2017 Area Population 34,110 km² 17.9mn Unemployment Rate 7.0% (Apr 18) GDP EUR 691.5bn GDP per capita EUR 38,645 Real Growth +1.7% 20 of the largest 50 German companies are headquartered in NRW. The regional economy has a focus on technology and services, media and health care. It features more than 750,000 small and medium-sized companies. 7

8 Taxation in Germany Distribution of Revenues 2017 [EUR bn] Taxation in Germany is based on federal law. Administration is carried out by the States through their regional tax offices. Revenues from Value Added Tax, Income Tax and Corporate Tax (together, joint taxes) are split between Bund, Länder and municipalities (e.g. Income Tax: Bund 42.5%, Länder 42.5%, municipalities 15%). Bund, Länder and municipalities also have exclusive revenue claims in specific areas (e.g. Bund: energy tax, Länder: inheritance tax, municipalities: commercial tax). Federal Taxes EUR 100bn (14%) Municipal Taxes EUR 68bn (9%) Länder Taxes EUR 22bn (3%) Import Duties EUR 5bn (1%) Joint Taxes EUR 539bn (73%) Value Added Tax: EUR 226bn Income Tax: EUR 284bn Corporate Tax: EUR 29bn 8

Federal Equalisation System Horizontal equalisation worth EUR 19.6bn in 2017 Constitutional Law demands equal standards of living for all citizens in Germany.

9 Federal Equalisation System Horizontal equalisation worth EUR 19.6bn in 2017 Constitutional Law demands equal standards of living for all citizens in Germany. In a four-step process, the federal equalisation scheme provides the necessary adjustments with regard to the financial capability of the states. Horizontal Equalisation ("Länderfinanzausgleich") Step 1 Equalisation via VAT max 25% of revenue EUR 8.4bn in 2017 As a starting point, tax revenues accrue to the Länder who collect them (local revenue). VAT revenues are distributed on a per capita basis. Before horizontal equalisation, relative financial capacity of the states ranges from 54.8% to 154.2% of average (2017). Step 2 Inter State Equalisation EUR 11.2bn in 2017 After horizontal equalisation, relative financial capacity ranges from 90.7% to 106.5% of average (in 2017). 9

10 Bavaria Baden-Wuerttemberg NRW Hesse Hamburg Rhineland-Palatinate Berlin Schleswig-Holstein Bremen Saarland Lower Saxony Brandenburg Mecklenburg-Western Pomerania Saxony-Anhalt Thuringia Saxony Federal Equalisation System Equalisation via Value Added Tax [EUR bn] 4 Payer Receiver

11 Bavaria Baden-Wuerttemberg Hesse Hamburg Saarland Schleswig-Holstein Rhineland-Palatinate Mecklenburg-Western Pomerania Saxony-Anhalt Brandenburg Thuringia Bremen Lower Saxony Saxony NRW Berlin Federal Equalisation System Inter-State Equalisation [EUR bn] Payer Receiver

12 Bavaria Baden-Wuerttemberg Hesse NRW Hamburg Rhineland-Palatinate Schleswig-Holstein Saarland Bremen Lower Saxony Mecklenburg-Western Pomerania Brandenburg Saxony-Anhalt Thuringia Saxony Berlin Federal Equalisation System Aggregation of Horizontal Equalisation [EUR bn] Payer Receiver

Federal Equalisation System Federal Grants worth EUR 9.

provide additional financial support to create a level playing field

Vertical Equalisation Step 3 Step 4 Supplementary Federal Grants

9bn in 2017 States with a financial capacity of less than 99.

13 Federal Equalisation System Federal Grants worth EUR 9.4bn in 2017 In addition to horizontal equalisation, federal grants provide additional financial support to create a level playing field among all States. Vertical Equalisation Step 3 Step 4 Supplementary Federal Grants Special Purpose Federal Grants EUR 4.5bn in 2017 EUR 4.9bn in 2017 States with a financial capacity of less than 99.5% of average after horizontal equalisation are entitled to supplementary federal grants. Relative financial capacity of all States falls within a range of 97.5% to 106.5% of average afterwards. Special purpose federal grants are not related to financial capacity and will be phased out by

14 Reform of the Federal Equalisation System Estimated effects on 2020 budgets Current legislation concerning the Federal Equalisation System will expire 31 December, Bund and Länder have agreed on a reform, taking effect 1 January, Keeping with the constitutional goal of equal standards of living, the system maintains a high level of equalisation, but the technical approach is different. Under the new rules, horizontal and vertical equalisation (see page 9) will be substituted by a restatement of revenues according to the relative financial strengths of Länder and their respective municipalities on a per capita basis. Due to additional federal grants of around 10.2bn, all States stand to benefit (see chart). Bremen and Saarland will receive extraordinary financial support of EUR 400m each (included in figures shown). North Rhine- Westphalia Rhineland- Palatinate +EUR 386m Saarland Bremen Schleswig- Holstein +EUR 237m +EUR 1,555m Hesse +EUR 604m +EUR 513m +EUR 494m Lower Saxony +EUR 637m Baden-Wurttemberg +EUR 997m Hamburg +EUR 261m Saxony- Anhalt Thuringia +EUR 493m +EUR 483m Bavaria +EUR 1,395m Mecklenburg- Western Pomerania +EUR 387m Brandenburg +EUR 336m Saxony +EUR 869m Berlin +EUR 521m 14

15 Strong Budgetary Performance Results and Medium Term Planning* [EUR bn] Budget Size 2018 Capital Markets Debt EUR 74.5bn EUR 139.2bn budget plan/medium term planning actual figures * without provisions for the restructuring of WestLB / Portigon and related liability risks 15

16 Providing for the future Pension Fund NRW With a growing number of retired civil servants, pension expenditures will continue to rise. A pension fund has been set up to mitigate the fiscal impact. As of 31 December 2017, the Fund had a size of around EUR 12.0bn. Pension expenditures of the State of NRW (forecast IT.NRW, in K ) 16

17 Debt Portfolio Focus on duration Debt Outstanding Weighted Average Maturity Median Maturity (fixed/floating) 139.2bn 8.1 years 5.3y/2.8y Original Maturities (EUR bn) Funding Programme 2018 Funded (as of April 30, 2018) 16-18bn 5.0bn Maturity Profile ( ) y 5-10 y >10 y >

18 Debt Issuance Programme Active in 18 different currencies 4% 3% 6% DIP issuances (since October 2002) 491 trades EUR (equivalent) 71.7bn raised 32% 55% Debt outstanding (as of ) EUR (equivalent) 38.0bn with DIP documentation, including all foreign currency transactions (EUR equivalent 14.7bn) EUR 101.2bn with stand alone documentation (thereof certificates of indebtedness: EUR 38.0bn) EUR USD JPY CHF others Others: GBP, CAD, NOK, AUD, TRL, HUF, MXN, SEK, PLN, ZAR, ISK, HKD, BRL, NZD 18

19 Recent Benchmark Issues USD Emittent Land Nordrhein-Westfalen Issue Rating Aa1 by Moody s, AA- by S&P, AAA by Fitch, all stable outlook Issue Size USD 1.5bn (equivalent EUR 1.29bn) Status and Format Global Bearer Note, Reg S Maturity Date 25 July 2019 Settlement Date 25 July 2017 Coupon 1.625% annually, 30/360 Reoffer Spread +30 bps vs. US Treasury ISIN XS Lead Managers Daiwa, HSBC, Scotia Bank, Société Générale 1% 24% 5% Geographical Distribution 46% Investor Distribution 32% 30% 62% Asia Americas EMEA Central Banks Banks Official Institutions Asset Managers 19

20 Recent Benchmark Issues EUR Emittent Land Nordrhein-Westfalen Issue Rating Aa1 by Moody s, AA- by S&P, AAA by Fitch, all stable outlook Issue Size EUR 2bn Status and Format Collective Debt Register Claim Maturity Date 05 February 2022 Settlement Date 05 December 2017 Coupon 0.00% annually act/act ICMA Reoffer Spread bps vs. DBR 0.00% DE ISIN DE000NRW0J63 Lead Managers Barclays, Deka Bank, Deutsche Bank, DZ, Nord LB 4% 4% Geographical Distribution 7% 8% 9% 8% 45% Investor Distribution 16% 16% 60% 10% 13% Germany UK Asia BeNeLux Austria/Suisse Scandics other Europe Banks Asset Manager Others Central Banks Insurances 20

21 Recent Benchmark Issues Sustainability Bond #4 Emittent Land Nordrhein-Westfalen Issue Rating Aa1 by Moody s, AA- by S&P, AAA by Fitch, all stable outlook Issue Size EUR 2.025bn Status and Format Collective Debt Register Claim Maturity Date 13 March 2028 Settlement Date 13 March 2018 Coupon 0.95% annually act/act ICMA Reoffer Spread bps vs. DBR (DE ) ISIN DE000NRW0K03 Lead Managers Crédit Agricole, HSBC, LBBW, Rabo, Unicredit Geographical Distribution 13% 7% 7% 5% 31% Investor Distribution 1% 11% 53% 35% 18% 19% Germany France UK BeNeLux Nordics Asien Others Banks Funds CB & OI Insurances 21

22 Sustainability Bond # 4 NRW Allocation of proceeds Project Category Budget Result Eligible for Bond [EUR m] [EUR m] Use of Proceeds "social" "green" A. Education and Sustainability Research B. Inclusion and Social Coherence C. Public Transport and Local Mobility D. Climate Protection and Energy Transition E. Protection of Natural Resources F. Sustainable Urban Development G. Modernisation of educational and public health buildings Total 2, , , Proportions 100% 60% 40% 22

23 Stability During the Crisis Swap Spreads of European Sovereigns vs. German Federal States Source: iboxx indices + Commerzbank Research calculation, based on iboxx data 23

24 State of North Rhine-Westphalia Key Investment Considerations Part of a well-positioned and strong economy Effective fiscal framework In 2016, first budgetary surplus since 1973 Excellent alternative to Bunds comparable credit risk attractive yield pick-up more flexibility in terms of products Strong credit ratings Fitch: Moody's: S & P: AAA (stable) Aa1 (stable) AA- (positive) Sustainability rating (vigeo Eiris) In the past 4 years NRW reached the highest score of all German Länder Score robust" in % risk weighting in most countries German Federal States issuances qualify as level 1 assets under the EU Commission's Delegate Regulation on the liquidity coverage ratio (LCR) 24

Contact Details Ministry of Finance, Jägerhofstraße 6,

+49 - (0)211-4972 - 2315 E-Mail: axel.bendiek@fm.nrw.

Kirsten Häger Head of Sustainable Finance Phone: +49 -

de Ursula Kluck Senior Funding Manager Phone: +49 -

de Johannes Jehmiller Senior Funding Manager Phone: +49 -

de Stefan Wegner Senior Funding Manager Phone: +49 -

25 Contact Details Ministry of Finance, Jägerhofstraße 6, Düsseldorf, Germany Axel Bendiek Treasurer Phone: (0) axel.bendiek@fm.nrw.de Dr. Kirsten Häger Head of Sustainable Finance Phone: (0) kirsten.haeger@fm.nrw.de Ursula Kluck Senior Funding Manager Phone: (0) ursula.kluck@fm.nrw.de Johannes Jehmiller Senior Funding Manager Phone: (0) johannes.jehmiller@fm.nrw.de Stefan Wegner Senior Funding Manager Phone: (0) stefan.wegner@fm.nrw.de Oliver Gleich Funding Manager Phone: (0) oliver.gleich@fm.nrw.de 25

26 Disclaimer This document contains neither an offer to sell securities nor an invitation to submit an offer to buy securities. The information contained herein may be completed and supplemented at any time; it does not constitute an investment recommendation nor should it serve as a basis for investment decisions. The State of North Rhine-Westphalia assumes no responsibility or liability for the completeness or correctness of the information contained herein. 26

Jurisprudence - Index

Jurisprudence - Index A Accident at work / Labour laws / Civil Servants PF 415 Accident prevention / Health and safety at work PF 520 Account books PE 357 Actual employer-employee relationship PF 310 Advances / Servant's entitlement