A CTIVITY 6: R EORGANISATION

The DMO may undertake reorganisation of loans that could be creditor or borrower driven. Creditor driven will include Paris and London Club restructuring. Borrower driven will include prepayment of high cost loans or restructuring of existing loans using different instruments such as the Asian Development Bank and World Bank hedging products.

The DMO may carry out operations involving restructured public debt securities, involving buybacks or exchanges for other debt (domestic and external). The major objective of these debt management operations is to reduce the outstanding debt and debt burden, by lengthening maturities, adjusting the public debt profile and encouraging specific operations.

The DMO may also enter into currency and/or interest rate swaps, normally at the time of issuance, to obtain lower cost of funds in the preferred currency.

ACTIVITY 6.1REORGANISATION LOANS General Description

External loan reorganisation negotiations are led by the Ministry of Finance in collaboration with the DMO and other agencies if necessary (Ministry of Justice or Attorney-General, Central Bank, etc). The DMO obtains a mandate from the government (Public Debt Committee or Minister of Finance) to negotiate the reorganisation of the loans, whether these are initiated by the creditor (Paris Club, London Club or bilateral) or the borrower (pre-payment). The mandate will specify a set range for the key terms of the reorganisation or prepayment. The Ministry of Finance/DMO negotiate the terms and conditions of the reorganisation

(prepayment will be set out in the loan agreement), and in the case of

reorganisation, a legal opinion on the new loan agreement is obtained from the government’s legal team and from legal counsel and the new loan agreement is signed by the Minister of Finance. The front office of the DMO will prepare a term sheet with the new loan details or prepayment details and forward this together with the signed loan agreement to the back office for recording and processing the loan.

Business Process/Workflow Debt Restructuring Environment/Context:

The DMO will participate in negotiations with Ministry of Finance to agree the reorganisation loan terms and conditions with the creditor. After the DMO has completed negotiations and the reorganisation loan agreement has been signed, the back office will be responsible for ensuring that any financial transactions that are required are settled through the designated government account or to the nominated settlement account. The back office will also be responsible for ensuring that the debt recording system captures these

transactions (including prepayments) and the Accountant-General is notified of the debt reorganisation.

Creditor, Ministry of Finance, DMO

Extensive pre-consultations to agree the reorganisation terms and

conditions.

Inputs:

Pre-consultation Outputs:

Reorganisation loan proposal

Front Office

Desk Officer Prepare draft loan reorganisation mandate report with indicative reorganisation loan terms and conditions to send to Public Debt Committee or Minister of Finance for approval.

Inputs:

Reorganisation loan proposal

Outputs:

Draft reorganisation loan mandate report Head of Front

Office Sign-off draft reorganisation loan

mandate report. Inputs:

Draft reorganisation loan mandate report Outputs:

Signed-off draft reorganisation loan mandate report Head of DMO Authorise reorganisation loan

mandate report.

Submit to Public Debt Committee or Minister of Finance for approval.

Inputs:

Signed-off draft reorganisation loan mandate report Outputs:

Authorised

reorganisation loan mandate report Public Debt

Committee or Minister of Finance

Approve reorganisation loan

mandate report. Inputs:

Reorganisation loan mandate report Outputs:

Approved

reorganisation loan mandate report Head of Front

Office & Front Office Desk Officer

Participate in negotiations with the creditor along with Ministry of Finance and other government agencies if necessary.

Negotiate terms and conditions of the new loan.

Inputs:

Approved

reorganisation loan mandate report Outputs:

Negotiated new loan terms and conditions Middle Office

Legal Officer or

Negotiate and finalise legal documentation throughout the

Inputs:

Negotiated new loan

Representative negotiation process.

Obtain legal opinion on the loan from legal counsel to ensure that

covenants and other conditions are met.

Prepare loan agent’s warrant/power of attorney (if Minister of Finance cannot sign)

terms and conditions Outputs:

Legal documentation Legal opinion

Loan agent’s warrant/

power of attorney

Front Office

Desk Officer Finalise loan terms and conditions and conclude the new loan agreement.

Inputs:

Legal documentation Legal opinion

Loan agent’s warrant/

power of attorney Outputs:

Draft new loan agreement

Loan agent’s warrant/

power of attorney Head of Front

Office Sign-off new loan agreement. Inputs:

Draft new loan agreement

Loan agent’s warrant/

power of attorney Outputs:

Signed-off new loan agreement

Loan agent’s warrant/

power of attorney Head of DMO Authorise new loan agreement.

Submit to Minister of Finance for signing.

Inputs:

Signed-off new loan agreement

Loan agent’s warrant/

power of attorney Outputs:

Authorised new loan agreement

Loan agent’s warrant/

power of attorney Minister of

Finance or Loan Agent

Sign loan agreement or sign loan agent’s warrant/power of attorney with the authority to sign on behalf of the Minister of Finance.

Loan Agent to sign on behalf of the

Inputs:

Loan agreement Loan agent’s warrant/

power of attorney Outputs:

Minister of Finance Signed loan agreement Front Office

Desk Officer Prepare draft term sheet and press

statement. Inputs:

Signed loan agreement Outputs:

Draft term sheet Draft press statement Head of Front

Office Approve term sheet and press statement.

Send copy of press statement to Minister of Finance’s office for release.

Inputs:

Draft term sheet Draft press statement Outputs:

Term sheet Press statement released

Front Office

Desk Officer Send term sheet and copy of the loan agreement to back office for input to debt recording system and processing.

Send copy of the loan agreement to the Accountant-General’s Office, Central Bank and project

implementing agency (PIA).

Inputs:

Term sheet

Signed loan agreement Outputs:

Signed loan agreement and term sheet sent to back office

Signed loan agreement sent to Accountant-General’s Office, Central Bank and PIA Back Office

Desk Officer

Obtain term sheet and loan agreement from front office.

Input debt reorganisation loan details into debt recording system following data entry procedure manual.

Prepare settlement instructions/

payment advice.

Inputs:

Term sheet Loan agreement Outputs:

Updated debt recording system Settlement instructions/

payment advice Back Office

Supervisor/

Head of Back Office

Check debt reorganisation data entered into debt recording system.

Check settlement instructions/

payment advice.

Inputs:

Term sheet Loan agreement Settlement instructions/

payment advice Outputs:

Settlement instructions/

payment advice Head of DMO Approve settlement instructions/

payment advice and send to

Inputs:

Settlement instructions/

Accountant-General and/or Central

Bank for processing. payment advice Outputs:

Approved settlement instructions/ payment advice

Accountant-General Receive Payment Advice from DMO and authorise.

Check Payment Advice against Budget approvals and internal controls.

Prepare Payment Authority for the Central Bank.

Input payment details to the government financial reporting system (IFMIS).

Inputs:

Settlement instructions/

payment advice Outputs:

Updated government financial reporting system

Payment Authority

Central Bank Debit designated government bank account and make payment to the nominated bank account as set out in the Payment Authority.

Inputs:

Payment Authority Outputs:

Payment settled

A

CTIVITY

6.2 R

EORGANISATION

S

ECURITIES General Description

The DMO may carry out operations involving buyback of domestic securities but may include buyback of external securities and/or exchange of existing securities for other securities (domestic and external). The major objective of these operations is liability and cash management, with the purpose of reducing the outstanding debt burden, by lengthening maturities or changing the maturity structure, adjusting the public debt profile, encouraging specific operations such as the development of benchmark bonds, or managing the aggregate cash position held across

government bank accounts.

Business Process/Workflow

Buyback of Government Securities Environment/Context:

The DMO will use buyback or exchange to manage the aggregate cash position held across government bank accounts or to consolidate debt issues in selected maturities. The DMO will use tenders as the primary method for debt buyback, which may include a pre-released buyback calendar for domestic debt. The process to be followed by all market participants will be documented in the Operating Procedures published by the DMO and/or the agent (i.e., Central Bank). The DMO will use primary dealers and/or market makers to undertake the buybacks. After the DMO has completed the transaction to buyback existing debt, the back office will be responsible for ensuring that the settlement amount is paid into the nominated settlement account. The back office will also be

responsible for ensuring that the debt recording system captures these

transactions and the Accountant-General is notified of the payment. Settlement will be through the government accounts at the Central Bank.

Treasury or Cash

Management Committee

Meet weekly or monthly to review and update the aggregate cash position held across government bank accounts and cashflow forecasts for the next week/month/

quarter.

Prepare and send report on government’s cash position and cashflow forecasts for the next week/month/quarter to DMO.

Inputs:

Cash position in government bank accounts

Cashflow forecasts Outputs:

Cashflow report for DMO

Front Office

Desk Officer Obtain government’s cash position and cashflow forecasts from Treasury or Cash Management Committee.

Monitor market conditions (interest rates, swap rates, spreads, other issuers in the market), maintain an investor relations program to test demand with investors, and consult with primary dealers and market makers.

Prepare Treasury bill or bond buyback announcement.

Inputs:

Government cash position and cashflow forecasts

Market consultation:

- primary dealers and/or market makers

- investors Outputs:

Draft Treasury bill or bond tender/buyback announcement

Head of Front Office

Review and sign-off Treasury bill or bond buyback announcement.

Inputs:

Draft Treasury bill or bond buyback announcement Outputs:

Signed-off Treasury bill or bond buyback

announcement Head of DMO Approve Treasury bill or bond

buyback announcement.

Inputs:

Signed-off Treasury bill or bond buyback

announcement Outputs:

Approved Treasury bill or bond buyback announcement Front Office

Desk Officer Publish Treasury bill or bond buyback announcement and post to DMO and/or Central Bank website.

Inputs:

Approved Treasury bill or bond buyback announcement Outputs:

Published Treasury bill or bond buyback

announcement Front Office

Desk Officer Receive bids for Treasury bills or bonds from buyback through electronic bidding system or

manually (via Central Bank as agent if applicable).

Collate bids for Treasury bill or bond buyback and prepare allocation report.

Inputs:

Bids from tender

Auction bidding system Outputs:

Draft auction allocation report

Head of Front

Office Review and sign-off Treasury bill or

bond buyback allocation report. Inputs:

Draft auction allocation report

Outputs:

Signed-off draft auction allocation report

Head of DMO Authorise Treasury bill or bond buyback allocation report for

submission to the Auction Committee.

Inputs:

Signed-off draft auction allocation report

Outputs:

Authorised auction allocation report Auction

Committee Approve Treasury bill or bond

buyback allocation report. Inputs:

Authorised auction allocation report

Outputs:

Approved auction allocation report Front Office

Desk Officer

Publish Treasury bill or bond buyback results and post to DMO and/or Central Bank website.

Prepare term sheet.

Inputs:

Approved auction allocation report Outputs:

Published auction results Auction term sheet Head of Front

Office

Approve term sheet. Inputs:

Auction term sheet Outputs:

Approved auction term sheet

Front Office Desk Officer

Send term sheet to back office for input to debt recording system and processing.

Inputs:

Approved auction term sheet

Outputs:

Auction result and term sheet sent to back office

Back Office

Desk Officer Obtain term sheet from front office.

Input debt buyback into debt recording system.

Prepare settlement instructions/

payment advice.

Inputs:

Term sheet Outputs:

Updated debt recording system Settlement instructions/

payment advice Back Office

Supervisor/

Head of Back Office

Check debt buyback data entered into debt recording system.

Check settlement instructions/

payment advice.

Inputs:

Term sheet

Settlement instructions/

payment authority Outputs:

Settlement instructions/

payment advice Head of DMO Approve settlement instructions/

payment advice and send to

Accountant-General and/or Central Bank for processing.

Inputs:

Settlement instructions/

payment advice Outputs:

Approved settlement instructions/payment

advice

Accountant-General Receive Payment Advice from DMO and authorise.

Check Payment Advice against Budget approvals and internal controls.

Prepare Payment Authority for the Central Bank.

Input payment details to the government financial reporting system (IFMIS).

Inputs:

Settlement instructions/

payment advice Outputs:

Updated government financial reporting system

Payment Authority

Central Bank Debit designated government bank account and make payment to the nominated bank account as set out in the Payment Authority.

Inputs:

Payment Authority Outputs:

Payment settled

A

CTIVITY

6.3 S

WAPS

The DMO may enter into currency and/or interest rate swaps, normally at the time of issuance of securities to obtain lower cost of funds in the preferred currency. For example, it may be more cost effective to issue JPY debt swapped to USD than issuing USD debt directly. Approval to enter into the swap will be obtained as part of the approval provided for the issuance of the securities. In these cases, the DMO will need to negotiate the swap deal, ensure that the swap documentation is

completed and ensure that settlement instructions are issued to all the relevant parties in order that all payments are processed on the transaction settlement date.

General Description

Following the issuance of securities in the international market, the DMO obtains bids from a selection of counterparties for the nominated currency and/or interest rate swap. The DMO will select the most cost effective swap and negotiate the final terms and conditions, ensure that the swap documentation is completed, and ensure that settlement instructions are issued to all the relevant parties in order that all initial payments and receipts are processed on the settlement date for bot the securities that have been issued and the swap.

Business Process/Workflow

Swaps

Environment/Context:

The DMO obtains bids from a selection of counterparties for the nominated

currency and/or interest rate swap and selects the most cost effective swap. The front office will negotiate the final terms and condition. The middle office will ensure that the swap documentation is completed. The back office will ensure that settlement instructions are issued to all the relevant parties in order that all initial payments are processed on the settlement date of the securities that have been issued. The back office will also be responsible for ensuring that the debt recording system captures these swaps and the Accountant-General is notified of all payments and receipts. Settlement will be through the government accounts at the Central Bank.

Head of Front Office & Front Office Desk Officer

Prepare and send requests for proposal to swap counterparties.

Review responses from swap

counterparties and select most cost effective swap.

Negotiate terms and conditions of the swap.

Inputs:

Approved security mandate report (including swap) Outputs:

Negotiated swap terms and conditions

Middle Office Legal Officer or Representative

Negotiate and finalise legal documentation throughout the negotiation process.

Obtain legal opinion on the swap from legal counsel to ensure that covenants and other conditions are met.

Prepare loan agent’s warrant/power of attorney (if Minister of Finance cannot sign)

Inputs:

Negotiated swap terms and conditions

Outputs:

Legal documentation Legal opinion

Loan agent’s warrant/

power of attorney

Front Office

Desk Officer Finalise swap terms and conditions

and conclude the swap agreement. Inputs:

Legal documentation Legal opinion

Loan agent’s warrant/

power of attorney Outputs:

Draft swap agreement Loan agent’s warrant/

power of attorney Head of Front

Office Sign-off swap agreement. Inputs:

Draft swap agreement Loan agent’s warrant/

power of attorney Outputs:

Signed-off swap agreement

Loan agent’s warrant/

power of attorney Head of DMO Authorise swap agreement.

Submit to Minister of Finance for signing.

Inputs:

Signed-off swap agreement

Loan agent’s warrant/

power of attorney Outputs:

Authorised swap agreement

Loan agent’s warrant/

power of attorney Minister of

Finance or Loan Agent

Sign swap agreement or sign loan agent’s warrant/power of attorney with the authority to sign on behalf of the Minister of Finance.

Loan Agent to sign on behalf of the Minister of Finance

Inputs:

Loan agreement Loan agent’s warrant/

power of attorney Outputs:

Signed swap agreement Front Office

Desk Officer Prepare draft term sheet and press

statement. Inputs:

Signed swap agreement Outputs:

Draft term sheet Draft press statement Head of Front

Office Approve term sheet and press statement.

Send copy of press statement to Minister of Finance’s office for release.

Inputs:

Draft term sheet Draft press statement Outputs:

Term sheet Press statement released

Front Office

Desk Officer Send term sheet and copy of the swap agreement to back office for input to debt recording system and processing.

Send copy of the swap agreement to the Accountant-General’s Office,

Inputs:

Term sheet

Signed loan agreement Outputs:

Signed swap

agreement and term

Central Bank. sheet sent to back office

Signed swap agreement sent to Accountant-General’s Office, Central Bank and PIA

Back Office Desk Officer

Obtain term sheet and swap agreement from front office.

Input swap details into debt

recording system following data entry procedure manual.

Prepare settlement instructions/

payment and receipt advice.

Inputs:

Term sheet

Swap agreement Outputs:

Updated debt recording system Settlement instructions/

payment and receipt advice

Back Office Supervisor/

Head of Back Office

Check swap data entered into debt recording system.

Check settlement instructions/

payment and receipt advice.

Inputs:

Term sheet

Swap agreement Settlement instructions/

payment and receipt advice

Outputs:

Settlement instructions/

payment and receipt advice

Head of DMO Approve settlement instructions/

payment and receipt advice and send to Accountant-General and/or Central Bank for processing.

Inputs:

Settlement instructions/

payment and receipt advice

Outputs:

Approved settlement instructions/ payment and receipt advice

Accountant-General Receive Payment and Receipt Advice from DMO and authorise.

Check Payment Advice against Budget approvals and internal controls.

Prepare Payment Authority and Receipt Notification for the Central Bank.

Inputs:

Settlement instructions/

payment and receipt advice

Outputs:

Updated government financial reporting system

Payment authority

Input payment and receipt details to the government financial reporting system (IFMIS).

Receipt notification

Central Bank Debit designated government bank account and make payment to the nominated bank account as set out in the Payment Authority.

Credit receipt from counterparty to designated government bank account.

Inputs:

Payment authority Receipt notification Outputs:

Payment and receipt settled

In document MANAGEMENT CONSULTANTS (Page 59-71)