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Mr. Francis Mer, the minister of the Economy, Finances and Industry has decided on the indicative financing programme of the State for 2003. This programme outlines the proceedings for the financing of the State during the year 2003 according to the principles laid out in the programme for debt and cash management presented to the Parliament in the draft Finance Bill 2003.
The State's medium and long term borrowing requirements will amount to EUR108.5bn in 2003, as a result of an increase in redemptions of debt coming to maturity during the year. The programmed budget deficit shows a slight improvement, indicative of the government's determination to comply with the pledges taken within the framework of the Stability pact, while taking account of the macro-economic environment. This funding requirement is also increased by a €15.4bn reduction in the deposits by the Treasury correspondents (postal cheque deposits, liquid assets of the FRR pension reserve fund) on the Treasury's current account as well as by a €5bn reconstitution of cash reserves.
Within this framework, the total amount of medium- and long-term (OAT and BTAN) issuance for 2003 is set at EUR111.4bn, as announced in Parliament when the Finance Bill 2003 was introduced. The further €17.5bn funding will be covered by an increased amount of BTF outstanding, in line with what was decided in 2002, in view of developing the short-term market. Another advantage of this increase is that it will help reduce the average maturity of debt.
In order to substantiate the commitment to develop the index-linked bond segment of the market, in line with the issuance policy of 2002 and in the wake of the July 2032 OAT€i issuance, there will be a rise of the amounts of index-linked bond issuance, both for the French CPI- and euro zone HICP-linked bonds, so that they eventually represent at least 10% of the net issues.
Mr Mer recalls his commitment to the debt average maturity reduction policy. The swap dealing programme will be resumed as soon as market conditions make it feasible. In this respect, the aim for 2003 is to reduce the average maturity to 5.3 years.
Indicative State financing programme for 2003
Numbers in italics are provisional because they are dependent on operations to be conducted till the end of the year.
* The average difference between budgetary and cash basis is null, which explains why no forecast is made for 2003. In 2002, the difference is for the larger part due to some 2001 spending cashed out in January 2002.
- A €1.2bn settlement representing the cost, in 2002, of employment benefits incurred in 2001;
- Large subscriptions to capital increases by state-owned companies in January 2002.
(1) Buybacks made by AFT in 2002, including the OATi/OAT€i switch - Amount for 2003 unknown.
(2) A plus sign indicates a reduction in the sums left on the Treasury's current account at Banque de France.
1 - The major elements of the 2003 State financing programme
For 2003, the financing needs of the State will represent EUR9108.5bn, owing to a increase in redemptions as well as the decrease of funds deposited on the Treasury's account by correspondents (postal cheque deposits, liquid assets of the FRR pension reserve fund).
The financing resources are distributed between the net medium and long term issues, representing EUR111.4bn, an increase of the outstanding BTF (short term) issues of about EUR17.5bn (a result mainly of lower deposits by various correspondents in the State's account) and a replenishment of cash reserves, representing about EUR5bn.
2 - Long and medium-term financing in 2003
Amounts to be issued
The net issuance of medium and long term securities are brought to EUR111.4bn. In 2003 as well as in 2001 and 2002, the AFT will operate buybacks and/or switches of debt, if market conditions and financing needs warrant it.
The gross issuance will be distributed as follows: about 10% for inflation-linked bonds (i.e. EUR11bn or more in particular if buybacks or switches occur), 45% for BTANs (i.e. EUR50bn) and 45% for fixed-rate OATs or floating rate OATs (i.e. EUR50bn).
The noticeable increase of inflation-linked bond issuance substantiate the commitment to develop this segment of the market and its liquidity.
This programme does not account for possible levies in foreign currencies, if authorised by the Parliament.
Benchmark lines policy
In 2003 as in 2000, 2001 and 2002, the AFT plans to issue two new benchmarks for 5-year bonds and two new benchmarks for 10-year bonds. These lines will be tapped in order that their liquidity should be supported by a sufficient outstanding principal. Existing bonds or BTAN lines will be tapped anew in view of warranting sufficient 2-year issuance.
As regards inflation-linked bonds, the AFT will regularly tap the 2032 OAT€i in order to strengthen the European benchmark status of the line. The AFT, in narrow co-operation with its primary dealers, will study whether to issue new bonds on this segment of the market; it will also consider tapping again the existing OATis and OAT€is.
The AFT could also resume tapping floating rate OATs. It will discuss, in liaison with the SVTs, how its policy on this market should evolve.
Auctioning schedule and methods
In order to adapt the auctions to the large increase in secondary volumes and to take account of the market seasonal variations, the reduction of the number (20) of OAT and BTAN will be maintained in 2003. As a result, the average amount allotted at each auction will reach EUR5.5bn (notwithstanding the possible effects of buybacks). After consulting the SVTs, and considering a satisfactory liquidity of the market, auctions will take place in April. Practically, the AFT will auction no OATs nor BTANs in August and December. OATs will be auctioned every first Thursday of every remaining month, and BTANs every third Thursday. Exceptionally however, the OAT auction normally to take place on Thursday, January 2 will be postponed to January 9, while the following BTAN auction will be delayed until Thursday, January 23.
As regards the lines to be auctioned, the AFT retains capacity to adjust the lines issued to the final demand as forwarded by SVTs by tapping non-benchmark lines or by auctioning one single line at any given OAT of BTAN auction.
As in 2001 and 2002, OATi and OAT€i auctions can take place together with any auction of OATs or BTANs. The four existing lines may be tapped.
3 - Short-term financing in 2003
In order to further develop the BTF (short term) market, as initiated in 2002, the amount of BTF outstanding will grow to €17.5bn. This increase will also help make up for the reduction of deposits by Treasury's correspondents (postal cheque deposits, liquid assets of the FRR pension reserve fund) that can be anticipated.
Auctions will take place every Monday and will include the issuance of 3-month BTFs, along with either 6-month or 12-month BTFs, as well as a possible complementary line according to demand and to the forecast for short term cash reserve management.
Every 3-month BTF will be tapped twice to reach an outstanding amount of EUR4bn. Every 6-month or 12-month BTF line will be tapped three to five times, also to reach an outstanding amount of about EUR4bn. The 3-month, 6-month and 12-month issues will be distributed in order to give investors the largest choice in less than 3-month maturing paper.
4 - Managing the average maturity of debt
The minister has confirmed the policy of reducing the average maturity of the debt. The swap dealing programme will therefore be resumed as soon as market conditions enable it. In this respect, the objective for average maturity by year end 2003 is 5.3 years, representing a reduction of about 6 months from year end 2002. The AFT confirms that it will inform markets ahead of the resumption of swap operations.
AFT may also pursue the programmed average maturity reduction through buy back and/or switch operations.
5 - 2002 Summary
The gross medium and long-term borrowings for 2002 amounted to EUR97bn, including EUR43.5bn of fixed-rate OATs, EUR10.5bn of linkers (OATis and OAT€is) and EUR43bn of BTANs. Moreover, some EUR10bn of various securities will have been bought back through two reverse auctions, numerous over-the-counter operations on securities maturing in 2003, and the handing in of OATi for the newly-issued OAT€i.
For the record, the global reduction of interest rates in 2002 respective to 2001 and the substitution of newer lines resulted in a reduction in the average rate. The avarege rate paid on BTANs fell to an 4.15% at the end of 2002 (from 4.46% at the end of 2001), and on 10-year OATs to 4.95% from 6.17%.
The internationalisation of French debt holders also continued to grow: the proportion of non-resident holders was 33.5% at the end of December, 2001 and reached 34.3% at the end of September, 2002.