#1Shizuoka Prefecture Fiscal Status of Shizuoka Prefecture September 2018#2Presentation Highlights 1. Shizuoka has active industries and strong economic fundamentals Overview of Shizuoka (P4 - P11) 2. Shizuoka constantly performs administrative reform and sustains a healthy budget Fiscal Position of Shizuoka (P12 - P15) 3. Shizuoka prefectural bonds have received high credit ratings from two credit rating companies (A1 from Moody's and AA+ from R&I) Bond Management of Shizuoka (P16- P20) 2#3Table of Contents 1 Overview of Shizuoka (1) Location and Scale (2) Economic Scale 56 2 Fiscal Position of Shizuoka (1) Change in Revenue Accounts 13 (2) Change in Expenditure Accounts 14 (3) Stable Economic Foundation 7 (3) Status of Debts and PB 15 (4) A Vibrant Industrial District 8 (5) Transportation Infrastructure 9 3 Bond Management of Shizuoka (6) Improvement of Tourism Infrastructure 10 (1) Prefectural Bond Summary 17 (7) Abundant Tourism Resources 11 (2) Prefectural Bond Issuance Plan 18 (3) Redemption Schedule 19 (4) Sinking Fund Reserves. 20 4 Reference Materials 3#41 Overview of Shizuoka#5Location and Scale Population trend since 1985 Located at the center of Japan (mn) 135.0 Osaka 2hrs 300km radius 130.0 125.0 120.0 115.0 110.0 '85 '90 '95 100 Japan (JPY mn) 4.0 3.5 3.0 Nagoya Tokyo 1hr 1hr 2.5 3.79 '05 (mn) 5.00 128.1 127.1 4.50 4.00 3.70 3.50 3.00 '10 '15 Shizuoka (right axis) Per capita income since 2001 Japan Average Shizuoka 3.49 3.22 2.87 2.82 20 Ranking 01 02 03 04 05 06 07 08 08 10 11 12 13 14 among 6 3 4 3 3 3 3 2 4 3 3 3 3 3 prefectures 5#6GDP trend since 2001 Economic Scale (JPY tr) (USD bn) 40 110 Shizuoka Japan average Tokyo(Right Axls) 600 104.3 526 35 105 500 100.1 30 95.0 25 100 400 95 358 94.9 20 17.1 16.3 17.3-90 (USD157bn) 15.4 300 15 85 11.1 11.4 11.6 200 157 10 80 10.9 100 5 75 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Ranking among prefectures 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 70 Taiwan UAE Vietnam Peru Czech Kazakhstan Romania New Zealand Iraq Algeria Qatar Shizuoka Prefecture Hungary Angola Kuwait Puerto Rico Morocco Ecuador Ukraine Slovakia Cuba GDP about the same as that of Qatar#7Stable Economic Foundation Balanced industrial structure Total revenue from manufactured products (2016) (JPY tn) 25.0 Piano Manufacturing And Others Revenue trend of manufactured products Transportation Equipment 25.0% 3 3 20.0 Shizuoka Japan Average Ranking (Among prefectures, Right axls) 2 32.0% Plastic Products Pulp & Paper 5.1% 6.3% General 10.7% 8.1% JPY 16.1tn* (USD145bn) 15.0 12.9% Electrical Machinery 10.0 Machinery Beverages, Chemicals Cigarettes, Foodstuff Foods (incl. Medical Equipment) 5.0 Major Prefectural Companies HONDA The Power of Dreams N 7 0.0 10 YAMAHA 07 08 09 10 11 12 13 14 15 16 7 SUZUKI * JPY16.1tr is approximately same as USD145bn, AED 530bn, TWD 4.4tr as of Sep 2018#8160 A Vibrant Industrial District High level of industrial locations Attracting global companies 2017 1 140 120 100 80 60 8 8 9 8 40 20 3 3 L N הו " 7 United States Switzerland 8 Germany 7 France 3 China Netherlands Singapore Liechtenstein Thalland Sweden South Korea 0 10 UAE Denmark Italy 08 09 10 11 12 13 14 15 16 17 Cayman Islands Ranking (Right axls) # of companies Global company examples ネスレ Nestle ABB Pfizer Triumph W Good Food, Good Life 切なもの Switzerland Switzerland USA Liechtenstein COSMELOR L'ORÉAL 株式会社コスメロール Tetra Pak でい Total 61 Companies 10 15 20 20 29 26 30 Unilever ② neopharma Sweden France Netherlands UAE 8#93 hours to Taipei Mt. Fuji Shizuoka Airport 2 hours to Nagoya Transportation Infrastructure New Tomei Expressway X Port of Shimizu Tomei Expressway 2 hours to Tokyo Tokaido Shinkansen 9#10# of routes International Improvement of Tourism Infrastructure Mt. Fuji Shizuoka Airport # of flights / week Port of Shimizu 85 Domestic 11 Total 60 22 5 5 18 2 6 63 42 3 Okadama June 2007 April 2018 June 2007 April 2018 New-Chitose Seoul Izumo Fukuoka Mt. Fuji Shizuoka 200 Airport Shanghai 160 Wuhan Kagoshima Hangzhou 120 Ningbo Naha Taipei 80 " 108 " # of cruises called at the Port of Shimizu Ripple Effect JPY55bn/year 600,000people/year 68 175 7 38 40 15 18 9 11 3 5 0 2011 2012 2013 2014 2015 2016 2017 2018 2030 10#11Abundant Tourism Resources Major tourism locations in Shizuoka Mt. Fuji Izu Peninsula Geopark 100% 90% 80% 70% 60% 50% 40% 2019 Rugby Worldcup 2020 Tokyo Olympic 30% Trend of # of international tourists 2,000K 1.800K 1.740 1.600K 1.570 1,502 1,400K 1.200K 1.000K 787 800K 600K 560 494 20% 400K OCIET ENERATE 10% 200K 0% OK HO 12 13 14 15 16 17 ■China Korea Talwan USA Hong Kong Thalland Others Total # of tourists(right axls) 11#122 Fiscal Position of Shizuoka Mt. Fuji in autumn#13Units:JPY bn 1,400 Change in Revenue Accounts Tax revenue has been recovering in the recent years 1.200 1.000 800 600 37.5 49.6 400 14.4% 12.5% 200 60% ☐ 50% 40.7% 40% 30% 20% 12.4% 10% 0% 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Prefectural Tax Local Allocation Tax National Treasury Disbursement Prefectural Bonds Othres Prefectural Tax as % of Total (Right axis) Prefectural Bonds as % of Total (Right axls) 13#14Change in Expenditure Accounts Reduction in investment expenses through administrative reform Units:JPY bn 1,400 54.5% 54.9% 1.200 1.000 800 600 22.3% ⚫18.6% 400 200 60% 51.5% 50% 40% 30% 20% 14.7% 10% + 0% 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Mandatory Expenses (Personnel. Social security, Debt etc) Others Investment Expenses (Roads. Rivers. Ports etc) Mandatory Expenses as % of Total (Right axls) 14#15Status of Debts and PB Continuous surplus in primary balance Sound prefectural bond balance (JPY bn) 3,500 3,000 2,500 2,000 1.500 1.000 500 (JPY bn) 20.0% 140 17.9% 18.0% 120 2.758 16.0% 100 14.0% 12.0% 80 10.0% 60 8.0% 6.0% 40 4.0% 20 2.0% 131.3 106.2 0.0% 0 08 09 10 11 12 13 14 15 16 17 09 10 11 12 13 14 15 16 Prefectural Bond % of GDP (Right Axls) 15#163 Bond Management of Shizuoka Fuji 36 HIROSHIGE UTAGAWA "Suruga Mihono-Matsubara"#17Prefectural Bond Summary Issuance Policy ⚫ Format: Japanese domestic municipal bond Maturity 5y, 10y, 15y, 20y and 30y ●BIS Risk Weight: 0% • Strong Government Support Shizuoka Issued Bond Ratings - Same as JGB ratings Shizuoka A1 Moody's Japan A1 R&I AA+ AA+ 17#18Prefectural Bonds Issuance Plan Issuance amount since 2006 Recent new issues in 2018 (JPY bn) Launch Issue Amount Tenor Yield 9/6/2018 JPY10bn 10yr 0.239 300 8/8/2018 JPY10bn 5yr 0.030 8/3/2018 JPY10bn 10yr 0.254 7/19/2018 JPY10bn 260 20yr 0.530 7/5/2018 JPY10bn 20yr(Sinkable) 0.355 250 7/4/2018 JPY10bn 10yr 0.175 6/6/2018 JPY10bn 10yr 0.195 5/9/2018 JPY10bn 5yr 0.030 5/9/2018 JPY10bn 10yr 0.195 4/20/2018 JPY20bn 20yr(Sinkable) 0.378 200 4/20/2018 JPY20bn 30yr 0.822 4/4/2018 4/4/2018 JPY10bn JPY20bn 5yr 0.040 10yr 0.170 150 20 Shizuoka indicative yield curve* 40 1.00% 0.913% 100 0.80% 0.629% 0.813% 0.60% 70 0.446% 0.594% 0.40% 50 0.235% 0.20% 0.341% 0.020% 30 0.00% 0.095% 0 -0.20% 06 07 08 09 10 11 12 13 14 15 16 17 18 -0.081% 5yr 10yr 15yr 20yr 30yr ■5yr 10yr 15yr 20yr ■30yr Shizuoka -JGB Non-residents and non-domestic entities are exempted from paying taxes on the interest of transfer local government bonds. The procedures have been simplified from June 2010. * As of 13th Aug 2018 18#19(JPY bn) 350 Redemption Schedule Shizuoka redemption schedule 300 250 200 150 100 50 288 0 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 (FY) 19#20Sinking Fund Reserves Accumulation of 3.7% (1/27th) of total prefectural bond issuance after 3 year deferral period Unit:JPY bn 600 493 500 464 421 386 400 367 338 311 300 275 237 208 200 100 09 10 11 12 13 14 15 16 17 18 estimate 20#21Shizuoka Prefecture EF EE E Address:Finance Division, Management Department 9-6 Otemachi, Aoi-ku, Shizuoka-City, TEL: Email: URL: Shizuoka Prefecture 420-8601, JAPAN +81-54-221-2035 [email protected] http://www.pref.shizuoka.jp/a_foreign/english/index.html Bloomberg:SHIZUP Govt <GO>#224 Reference Materials Japanese Local Government Bonds Fiscal Health Indicators General Accounts - Change in Revenues General Accounts - Change in Expenditures Change in Prefectural Bond Balance Change in Primary Balance Status of Sinking Fund Reserves Financial Statements (Fiscal 2013) Sunrise from the top of Mt. Fuji 22#23Japanese Local Government Bonds Japanese local government bonds have a risk weight of zero as a result of powerful national fiscal backing, a tax system designed to prevent failure and other measures as described below. 1. Local Issue Tax System ■ When determining budgets for each fiscal year, the national government sets forth an estimate of revenues and expenditures for all local governments, and guarantees revenue shortfalls. ■ As part of this system, the national government provides backing for the redemption of the principal and interest of local government bonds, thereby strengthening the repayment capacity of local government bonds by local governments. 2. Bond issuance approval system as an early correction measure Local governments must discuss with the national government before issuing bonds, and receive confirmation that the new bond issuance is reasonable and will not negatively affect the local governments' future ability to repay principal and interest of local government bonds. From January 1, 2008, tax exemption measures apply with respect to the interest on transfer local government bonds for non-residents and non-domestic entities which satisfy the prescribed conditions outlined below. Prior to this date, a 15% source deduction was deducted from interest earned on Japanese local government bonds by non-residents etc. Cases settled through the Japan Securities Depository Center, Inc. ☐ In cases of non-residents, non-residents who hold the bonds through a qualified foreign intermediary or qualified account management institution etc. Cases where appropriate tax exemption form is submitted Effective June 2010, the following has been implemented to simplify the tax exemption procedures related to interest earned on transfer local government bonds by non-residents and expand those qualified for tax exemption status. Furthermore, it is now possible to settle with Euroclear. Simplification of procedures by the elimination of separate individual bookkeeping under certain prescribed conditions, and a change from having to perform tax exemption procedures for each issuer (several) to just each transfer institution. Expansion of the range of qualified foreign securities investment trusts, and tax exemption status for redemption profit and loss Simplification of tax exemption procedures Non-residents/Non-domestic entities Qualified foreign intermediary (including Clearstream, Euroclear) Specified transfer institution (subcustodian) Director of tax office with jurisdiction over the specified transfer institution 23#24Fiscal Health Indicators With the implementation in April 2008 of the "Act on Assurance of Sound Financial Status of Local Governments," the fiscal status of local governments are objectively represented, and as a measure to evaluate the fiscal health or need for restructuring, the following four fiscal indicators have been set forth as Fiscal Health Evaluation Ratios, and accordingly, all local governments are required each fiscal year to have their Fiscal Health Evaluation Ratios as based on figures for the previous fiscal year, examined by an evaluation committee, and then report those results to the local assembly and local residents. If even one of the Fiscal Health Evaluation Ratios exceeds the early warning limit standard, in addition to an external audit, a Fiscal Improvement Plan must be prepared and improvement efforts will be encouraged; if the 3 indicators excluding the Future Burden Ratio worsens and any one of the indicators exceeds the reconstruction limit, additional national government involvement including the partial limitation on the issuance of bonds may be effected. Real deficit ratio Consolidated real deficit ratio Real debt payment ratio Future burden ratio Amount of general account based real deficit as a proportion of standard fiscal scale, serving as an indicator of the deficit level, and the extent of deterioration of fiscal management. Amount of all account (including public corporation accounts) based real deficit or amount of fund shortage as a proportion of standard fiscal scale, serving as an indicator of the deficit level and the extent of deterioration of fiscal management by combining the deficits and surpluses of all accounts. Amount of redemption of principal and interest covered by general accounts as a proportion of fiscal scale, serving as an indicator of the amount payable for local government bonds and cash flow levels. Real debt, including investment entities engaging in local public corporations and loss compensation, to be covered by general accounts as a proportion of fiscal scale, serving as an indicator of the current balance of local government bonds and bonds likely to be paid in the future by general accounts, and the extent of pressure on future finances. <<Illustration>> Healthy stage (attention paid to maintain indicators and information disclosure) •Evaluation by evaluation committee, reporting to local assembly, public announcement Early-warning stage Fiscally Healthy Early warning limit (Fiscal improvement by voluntary effort) •Preparation of Fiscal Improvement Plan (approved by local assembly), public announcement •Mandatory external audit Reporting to local assembly of status of plan implementation, public announcement Reconstruction limit Fiscal reconstruction stage (reconstruction involving national government) •Preparation of Fiscal Reconstruction Plan (approved by local assembly), public announcement •Mandatory external audit •Discussion with and approval of Fiscal Reconstruction Plan by Minister for Internal Affairs and Communications • Reporting to local assembly of status of plan implementation, public announcement Fiscal Collapse 24#25General Accounts - Change in Revenue (Units: JPY bn, %) Categories '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Prefectural Tax 468 418 425 438 457 488 567 541 418 402 398 406 423 448 488 490 496 483 % of Total 33.9 34.1 35.9 37.5 40.3 43.0 49.6 47.3 34.4 34.4 34.6 35.2 35.9 37.4 39.8 40.3 40.3 40.7 Local Allocation Tax 207 205 192 165 169 144 128 116 148 168 164 165 156 156 151 159 145 141 % of Total 15.0 16.7 16.2 14.1 14.9 12.7 11.2 10.1 12.2 14.4 14.3 14.3 13.2 13.0 12.3 13.1 11.8 11.8 National Treasury Disbursements 231 206 190 181 154 127 118 130 202 149 137 131 146 129 127 126 119 115 % of Total 16.8 16.8 16.0 15.5 13.6 11.2 10.3 11.4 16.6 12.8 11.9 11.4 12.3 10.8 10.3 10.4 9.7 9.7 Prefectural Bonds 210 194 186 168 135 125 143 184 234 220 195 205 199 186 146 147 182 148 % of Total 15.2 15.9 15.7 14.4 11.9 11.1 12.5 16.1 19.3 18.8 17.0 17.8 16.8 15.5 11.9 12.1 14.8 12.4 Others 264 201 192 216 218 249 188 172 212 230 256 246 257 278 315 293 286 302 • % of Total Total 19.1 16.5 16.2 18.5 19.3 22.0 16.4 15.1 17.5 19.6 22.2 21.3 21.8 23.3 25.7 24.1 23.3 25.4 1,380 1,224 1,186 1,167 1,133 1,134 1,143 1,144 1,215 1,169 1,150 1,153 1,180 1,197 1,227 1,216 1,228 1,187 Fiscal 2018 figures are initial budget estimates, actual figures provided up to Fiscal 2017 25#26General Accounts - Change in Expenditures Categories Mandatory Expenses % of Total '01 '02 '03 '04 '05 656 642 48.1 53.0 53.5 626 629 54.5 '06 '07 '08 '09 '10 621 617 622 619 618 623 55.3 54.9 54.9 54.6 51.3 53.9 '11 '12 13 630 633 626 55.5 55.7 54.1 14 (Units: JPY bn, %) '15 '16 '17 '18 635 648 655 602 611 53.8 53.4 54.5 49.0 51.5 Personnel 410 404 390 390 391 392 393 386 377 373 372 368 356 358 363 363 302 302 Expenses % of Total 30.1 33.4 33.4 33.8 34.9 34.9 34.8 34.0 31.3 32.3 32.8 32.4 30.8 30.4 29.9 30.2 24.6 25.4 Social Aid 59 61 Expenses 5.4 54 57 56 63 66 69 72 77 81 85 89 93 83 100 105 110 114 % of Total 4.3 5.0 4.6 4.9 5.0 5.6 5.8 6.1 6.0 6.7 7.1 7.5 7.7 7.9 8.3 8.7 9.0 9.6 Bond Expenses 179 168 173 174 165 158 159 161 168 170 172 % of Total 13.1 13.9 14.7 15.0 14.7 14.1 14.0 14.2 13.9 14.7 15.1 15.1 15.3 171 178 180 15.2 181 185 185 186 14.9 15.4 15.0 15.7 Disaster Recovery 8 9 9 9 8 4 4 3 1 3 CO 6 8 4 4 4 2 4 10 Expenses % of Total 0.6 0.7 0.8 0.8 0.7 0.3 0.3 0.3 0.1 Investment Expenses 369 315 277 258 228 219 211 203 192 0.2 0.5 0.7 173 163 % of Total 27.1 26.0 23.7 22.3 20.3 19.5 18.6 17.9 16.0 14.9 14.1 0.3 0.3 169 191 171 157 157 14.9 16.3 14.5 12.9 13.1 0.3 0.2 0.4 0.8 176 174 14.3 14.7 Public/Direct 191 175 150 137 120 111 101 90 89 92 90 94 102 88 % of Total 14.0 14.5 12.8 11.9 10.7 9.9 8.9 7.9 7.4 8.0 8.0 8.3 8.9 8050 82 84 97 92 7.5 6.7 7.0 7.9 7.8 Standalone 178 140 128 120 108 107 110 113 103 81 73 75 89 83 75 73 79 82 % of Total Others 13.1 11.5 10.9 10.4 9.6 9.6 9.7 % of Total Total 10.0 8.6 6.8 6.2 6.6 338 254 266 268 273 287 300 312 394 358 342 335 340 374 409 390 451 402 24.8 21.0 22.8 23.2 24.4 25.6 26.5 27.5 32.7 31.3 30.4 29.4 29.5 31.7 33.7 32.4 36.7 33.8 1,363 1,211 1,169 1,155 1,121 1,122 1,132 1,134| 1,204 1,154 1,135 1,136 1,157 1,180 1,214 1,202 1,228 1,187 *Fiscal 2018 figures are initial budget estimates, actual figures provided up to Fiscal 2017 *Annual figures include carry over from previous year, and does not include carry over to next fiscal year. *Real balance is accounting balance less assets to be carried over 26 7.5 7.0 6.2 6.1 6.4 6.9#27Fiscal Position of Shizuoka - Current Conditions All four indicators are performing better than the nationally established standards 4 Indicators* Description National Standard Fiscal 2017 Early warning limit Reconstruction limit Real deficit ratio Amount of general account deficit as a proportion of fiscal scale (Surplus) 3.75% 5.0% Consolidated real deficit ratio Amount of all account deficits as a proportion of fiscal scale (Surplus) 8.75% 15.0% Real debt payment ratio Public debt expenses as a proportion of fiscal scale 13.4% 25.0% 35.0% Future burden ratio Prefectural bond balance as a proportion of fiscal scale 238.4% 400.0% * With the exception of the Future burden ratio, if national standards are exceeded, national government authorization and additional national government involvement is required to issue bonds 27#28Financial Statements (Fiscal 2016) Balance Sheet Assets (Units: JPY bn) Statement of Administrative Costs 1 Non-Current Assets (1) Property, plant and equipment Amount Liabilities 3,878.6 1 Non-Current Liabilities 3,297.1 Amount Amount 3,586.2 Business assets 1,014.3 (1) Local government bonds (2) Retirement benefit reserves 3,172.5 (1) Business Expenses 711.1 329.6 Personnel expenses 404.0 Infrastructure assets 2,232.9 (3) Others 84.1 Building expenses 254.7 Goods 49.9 Others 52.4 (2) Intangible assets 31.1 2 Current Liabilities 178.3 (2) Moving Expenses 368.8 (3) Investments and Other Assets 550.4 (1) Current portion of LGB 134.1 Subsidyl expenses 347.7 2 Current Assets 199.9 (2) Bonus provisions 22.9 Social security benefit expenses 17.3 (1) Cash 78.5 (3) Others 21.3 Others 3.8 (2) Accured Income 20.3 TOTAL LIABILITIES Ordinary Expenses A 1,079.9 (3) Funds 84.7 (4) Others 16.4 NET ASSETS Amount (1) Fee 66.5 (1) Portion of non-current liabilities 3,972.8 (2) Others 67.6 (2) Surplus(Deficit) A 3,659.9 Ordinary Income B 134.1 (3) Investments in capital by other organizations Net Ordinary Expenses C=A-B 945.8 1.1 Total Net Assets 314.0 (1) Loss on Sale of Assets 2.0 TOTAL ASSETS 4,078.5 Total Liabilities And Net Assets 4,078.5 (2) Provision for Loss on Guarantees (3) Others Δ 0.1 1.5 Statement of Changes in Net Assets Statement of Cash Flow Extraordinary Loss D (1) Gain on sale of assets 3.4 0.7 Amount Amount (2) Others 0.1 Net assets at end of last FY 388.4 Change of Net assets during this FY A 74.4 Difference of this FY A 50.6 Change of external account (1) Ordinary income and expenditure (2) Capital income and expenditure (3) Financial income and expenditure (1) Balance of cash during this FY 44.0 Extraordinary Income E 0.8 Δ 78.6 Net Expenses C+D-E 948.4 33.3 1.3 A 23.8 (Non current assets, etc.) (2) Cash at end of last FY 74.5 Net Assets at end of this FY 314.0 (3) Cash at end of this FY 73.2 Cash outside of annual account at end of this FY 5.3 Total cash at end of this FY 78.5 28