Day 1 Session 3 Lina Lim 1... · with leading edge emerging technology frontier and emerging...
Transcript of 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
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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
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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
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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
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10BONDS ISSUANCE
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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
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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
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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
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Monitoring – outcome verificationof the projects
Risk profiling – above and beyond the fiscal performance
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0 0.5 1 1.5 2
14MARKET ECOSYSTEM
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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
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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
Atomic transaction(DvP)
Atomic transaction(DvP)
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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