Day 1 Session 3 Lina Lim 1... · with leading edge emerging technology frontier and emerging...

BHUTANCAPITAL MARKET DEVELOPMENT

TOWARD NKRA TWELFTH PLAN 2023 vis-à-vis SDG 2030

2DISCLAIMER

TEMPUS ADVENTUS 2018 – PROPRIETARY AND CONFIDENTIAL

The views expressed in this Presentation are those of the author and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations.

The Presentation describes the preliminary study for capital market development in Bhutan by the author and is provided at this Workshop and Working Group to elicit comments and to further discussion.

Managing Director & Co-Founder Tempus Adventus Advisory, consulting advisory and solution FinTech startup, focusing on enabling and bridging capital markets and financial services with leading edge emerging technology frontier and emerging markets.

Currently adviser holding role as Head of Technology at the National Stock Exchange of Australia.

Business Development and Financial Technology Executive & Management experience various international securities exchanges and CSDs in the APAC, Europe and Australia.

Previously Program & Project Management for NASDAQ, delivering successful implementation for business technology transformation for capital markets technology.

Formerly Senior Consultant/Project Manager at Macquarie Bank in Australia, and impact investment enthusiast.

Lina Lim

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STRENGTHFastest economy in the world –

Averaging 7.43 % Growth

BHUTAN ECONOMY AT A GLANCE

Poverty down to 8.2 % from 23%1

Hydropower is the cornerstone for the economy

Gross reserves hit $1B growth

Gross National Happiness <> UN SDG

RISK / CHALLENGESInfrastructure access & susceptible to

glacial lake outburst flood (GLOF)

External borrowing –Hydropower projects completion – reduction on investments

Regulatory challenges – Foreign Direct Investments & Export Revenue

Budget financing – moving from LDC to MIC – sustainable financing


1. Bhutan PAR 2017 - http://www.kuenselonline.com/poverty-rate-drops-to-8-2-percent/

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Establish effective

and sustainable diversified economy

Establish robust and

modern financial

infrastructure

Reduce over-reliance on Hydropower

BHUTAN OPPORTUNUTIES

Focus on other growth area –Agriculture, Tourism,

Remittance/overseas workers

Build social enterprises capability – empowering

millennials, women (productive group) to participate in economy

Financial diversification –public and private;

multi asset products

Positive & sustainable outcome & impact based:

social, environmental

Measurable and accountable: improve risk rating

Sustainable

Economy


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IMPACT INVESTING

228BINVESTMENT

294TCAPITAL GAP

2.5T4TCAPITAL NEEDED


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Capital markets may complement bank financing and provide an alternative intermediation mechanism between investors and project developers

Across the globe low interest rates has made banks a particularly attractive source of project financing, for example Japan which has seen bank finance grow from 66% (2005) to 90.7% (2015) the same in Filipino Banks

CAPITAL MARKET FINANCING


These markets could connect investors seeking for higher yield investments to infrastructure projects in frontier and emerging countries

Capital markets might assist in channelling abundant savings available in other countries (more developed ones)

Superannuation and pension schemes from those countries; instead of having these resources flowing to more matureeconomies

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IMPACT INVESTMENT – INVESTING FOR IMPACT


Impact Bonds Outcome and Objective Based Funding Agreements

Incentivization based on outcomes and/or objectives met rather than service delivery, enabling service providers to be nimble and reactive to opportunities aligned with meeting pre-determined policy targets rather than restrictive in the delivery of servicemodels

1. Unlocking deal flow in impact investment opportunities, GIIN & JP Morgan, 20132. JP Morgan, Impact Investments: An Emerging Asset Class, 2010

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At the IMF-World Bank Group Annual Meeting in October 2018 in Bali Indonesia, IFC has issued Investing for Impact: Operating Principles for Impact Managementdraft consultation paper to establish a common discipline and market consensus

around the management of investments for impact and help shape and develop this nascent market.

IMPACT INVESTMENT – MAINSTREAM UPTAKE


10BONDS ISSUANCE


SOVEREIGN BONDS

Mainstream capital funding

Build the benchmark for the green bonds and local borrowings as foundation

Diversification into objective and outcome based bonds – Government guarantee

GREEN BONDS

High uptake from the mainstream capital, impact investment

Social environmental focused projects –harnessing green economy (Bhutan’s culture)

Sovereign and Green bonds can initially be started as pre-priced then transition to auction

based

EconomyDiversification

Initial target market for institutional investors with extended participation for retail investors to follow. The demand will vary depending on investors profiles

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Project positive outcome focus• Positive impact to green economy• Measurement and Monitoring are key KPIs

Auction vs pre priced• Relatively new market for Sovereign or Government issued• France is the only country to use auction. • Pricing could affect based on benchmark – Sovereign Bond Issued

Pool or individual • Majority of emerging markets Fiji and Indonesia using Pool • Earmarked for projects combination of new and existing

Quality of project and principle• Project needs to follow principles – key driver for investors to buy• All sovereign issued are very clear on the projects

Fiscal rating of the issuer • Default use to define Risk level of Green Bond • This may change in the future as the market matures• Framework of execution, reporting and monitoring is critical as this may

affect the rating

GREEN BOND IN SUMMARY


Greenium • Reduce Interest cost vs typical Sovereign Bond• More demands coming from Investors. Investors are becoming Green

focused• Alternative to Sovereign Bond

Framework and process of utilization – Governance• Key for pricing and uptake of bonds. Checks and control• Making sure it is earmarked to projects defined within particular

principle• Predictability and measurability• Reduce notion of potential corruption – embedding technology

Measurement and monitoring • This will improve uptake and pricing• Reduce interest cost and improve Risk rating for future bonds

Regulation – foreign Investor eligibility• Most demand come from institutional investors – Europe and USA

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Linked to foreign currency in the short to medium term

INR (Indian Rupee) as default issuing currency Since BTN is not widely exchanged, it will be too costly to use BTN as issuing currency

Potential to be extended to USD and BTN issued

Key considerations: 1. Measurement on the fiscal rating performance of Bhutan and/or the progress of the projects (Green Bonds). Future liquidity

will be tied to positive performance; 2. Growth of local investors with view of financial inclusion. Creation of wealth can be an outcome for some of the projects

being financed

BONDS CURRENCY


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T E C H N O L O G Y

G O V E R N A N C E

Unified, efficient and harmonized money market infrastructure

BOND MARKET


Smart contractenabled

Single Bond Platformfor all bond types

Institutional & Retail Participation Positive Impact based –defined principles

Straight Through Processing Framework

Global Framework & International Market Standard

20

40

60

80

100

43%

76%

54%

63%

87%

66%

Measurable - performance metrics of underlying projects funded

0

2

4

6

Monitoring – outcome verificationof the projects

Risk profiling – above and beyond the fiscal performance

02468

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0 0.5 1 1.5 2

14MARKET ECOSYSTEM


Robust & Enhanced Liquidity

Culture

MOF

Objective based

Financial Instruments

NPPF (Pension

Fund)

RMA Bhutan

Royal Bhutan

Exchange

Domestic Retail

Investors

Institutions

Industries

Overseas Workers

ADAPT

DEVELOP

GROW

BOOST

INVEST

DIVERSIFY

EXPAND

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INCLUSION

INNOVATE FINANCING THROUGH TECHNOLOGY


Blockchain

Internet of Thing(IOT)

Artificial Intelligence (AI)

Big Data

SUSTAINABILITY ACCOUNTABILITY

TRANSPERANCY EFFICIENCY

AUDITIBILITYEQUALITY

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Process RMA, bond registrar (Optional), Bhutan local Banks RMA issues cash tokens in exchange for reserves Bond registrar issues bond title tokens All parties are KYC’d by both the RMA and the bond registrar Once banks have their tokens, they can transact

independently of the issuers Banks can perform intraday repos

Central Bankissues/redeemscash tokens

Registrarissues/redeems

title to bonds

Bank A Bank B

RMAGovernment bond Registrar

Atomic transaction(DvP)

Bank C



Tokenised assets (government bonds, RMA) allow trading to directly settle bilaterally, with finalityAtomic transactions reduce settlement uncertainties and operational risksUsing government bonds as collateral for intraday liquidity improves inventory managements

Benefits Tokens allow assets to move 24x7 No need to rely on a 3rd party to change their ledger More transparency by adding an independent regulator node

(if desired) Delivery vs Payment reduces Settlement risk

REPO MARKET – CASH / GOVERNMENT BOND AS COLLATERAL


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Divert capital for sustainable development towards social andenvironmental (market mechanism or tax)

Government Procurement – can unlock shared value by requiring social and environmental outcomes to be considered alongside economic values, examples include the Mauritius Greening Economy initiatives and Australian Government focus on indigenous businesses

Innovative public sector funding for Science, Technology andInnovation

Create a roadmap for investing – so there is an infrastructure plan that aligns with the needs of the country

Embed digital technological framework and infrastructure policy into the economy development and fiscal plan, example the Mauritius Minister of Finance – Digitisation Economy Growth via technology adoption and FinTech

Leadership and Governance, improve transparency of decisions making investment, risks and project outcomes

Experiment and evaluation

Partnerships – Engage and promote across boundaries, share lessons. Collective bargaining

Promoting and supporting micro, small and medium-sized enterprises. Youth and entrepreneurs

Private Sector Financing products for development –Corporations in particular global technology firms are increasingly competitive on CSR outcomes, India has enacted a CSR

POLICY CONSIDERATION


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THANK YOUl i n a . l i m @ t e m p u s ‐ a d v e n t u s . c o m

www.tempus‐adventus.comSydney, Australiainfo@tempus‐adventus.com

Day 1 Session 3 Lina Lim 1... · with leading edge emerging technology frontier and emerging...

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