Message to Investors. Mayor Kunio Hiramatsu

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1 Message to Investors You can invest in Osaka City Bonds with confidence as we promise to make redemption of our bonds top priority. We are taking steps to further enhance IR and improve the market s assessment of Osaka City Bonds. Admin & Financial Reform Adopted the Basic Guidelines For City Management Reform Sound Fiscal Management Financial soundness standards met High Bond Rating High Ratings from Various Rating Agencies A More Creative City Talented Personnel Cutting-edge technology Wide Array of Cultural Assets Mayor Hiramatsu Vision Development of Key Policies and Projects (to be announced this fall) Mayor Kunio Hiramatsu 3

2 High Bond Ratings The City of Osaka s total debt is on par with other government-designated cities, but is large when compared to other cities internationally. The City of Osaka however, has a solid base for generating financial resources and the results of our administrative and financial reforms are starting to appear. We are confident that the city will be able to maintain its debt-servicing capacity even if expenses rise and additional burdens associated with financial risks arise. The City of Osaka strives to maintain its high bond ratings based on plans to build even healthier financial positions. AA- Standard & Poor s (4th highest on 20-tier scale) An AA rating means the entity has a very strong debt servicing capacity. (Little difference between this and the highest AAA). Aa1 Moody s (Local currency basis) (2nd highest on 21-tier scale) The entity has very good creditworthiness and credit risks are extremely low. AA+ Japan Credit Rating Agency (2nd highest on 20-tier scale) Very high capacity to honor debt obligations. Ⅰ Message to Investors 4

3 Overview of Osaka Area: km 2 Population: 2,628,811 citizens Gross production: trillion yen Income: 8.82 trillion yen Business sites: 201,462 Workers: 2,216,895 Sister Cities San Francisco (USA) Sao Paulo (Brazil) Chicago (USA) Shanghai (China) Melbourne (Australia) St. Petersburg (Russia) Milan (Italy) Hamburg (Germany) (Source: 2005 National Census, 2005 Osaka Economic Statistics, 2006 Business Statistics) Osaka Tokyo Ⅱ Overview of Osaka 5

4 Robust Economic Activity Osaka boasts a GDP higher than both Hong Kong and Singapore, while enjoying very high per capita GDP. America Japan Germany China England France Italy Canada Tokyo India Australia Taiwan Osaka Hong Kong Singapore , ,280 2,229 2,136 1,770 2,791 Nominal GDP by Country (2005) 4,558 thousand 14,000 12,000 10,000 8,000 6,000 4,000 2, ,577 To kyo 11,510 Be ij in g The Population of Major Cities 8,008 N ew Yor k 3,695 L os An gel es 2,913 2,629 2,548 2,125 M a dri d O sa ka Ro m e Pa ri s 12,376 Vi en na 1,562 From MIC World Statistics 2008 City of Tokyo from National Census billion USD Osaka Tokyo USA England Australia Japan Canada France Germany Italy Singapore Spain China India 1, Per Capita GDP 26,968 25,947 30,053 35,675 35,071 33,861 33,718 36,954 36,321 41,347 64,779 73,417 USD From MIC World Statistics 2008 City of Tokyo, Osaka data from National Census 2005 Notes: 1Figures for Tokyo and Osaka are based on the fiscal year starting April 1. 2The figures for Japan, Tokyo and Osaka are based on exchange rates of USD/JPY = for the 2005 fiscal year and USD/JPY = for the 2005 calendar year, based on simple monthly averages from the Tokyo forex market. Source: Cabinet Offices Monthly Foreign Economic Situation Data, Cabinet Offices National Accounts for Japan, Prefectural Accounts for Tokyo and Economic Statistics for Osaka. Ⅱ Overview of Osaka 6

5 Osaka, a Central City Osaka is the key city for the greater Osaka region. Many workers and students commute to the city from Osaka Prefecture and neighboring prefectures during the day, swelling the population by approximately 1.4 times the night-time population. Kyoto Prefecture 58,000 Daytime Population Comparisons (night-time population = 100) (2005 National Census) Hyogo Prefecture 266,000 Osaka Prefecture 750, Other Prefectures Nara Prefecture 119, , Osaka Tokyo Yokohama Nagoya Fukuoka Night-time Daytime Ⅱ Overview of Osaka 7

6 Solid Infrastructure Osaka was quick to build roads, sewers, subways and other vital infrastructure to support the growing economic activity in the region. As the City boasts a sound infrastructure system, it does not have to incur further financial burden by building more. Subway 129.9km of publicly-operated subway (No. 1 in Japan) Waterworks First government designated city to boast 100% Purified Water Sewage System Only government designated city to have a sewage system covering 100% of city Wholesale Central Markets 2nd largest annual trading volume in Japan Rail Network City Parks Parks account for 4.18% of the city area 4th among government designated cities City Hospitals Only government designated city with 1,000+ bed hospital Ⅱ Overview of Osaka 8

7 General Account Budget The City of Osaka s General Account Budget (Initial) for FY2008 was trillion. Income Expenditures Others 3,920(24.6) Local Special grant 63(0.4) Local Allocation Tax 160(1.1) TransferTax/ apportionment grant 675(4.2) Money Transferred (Fund,etc) 1,540(9.7) Usage fees /Handing charges 628(3.9) Various revenues 1,752(11.0) unit:100mil yen (% of Total) Municipal Taxes 6,868(43.1) Special Account Transfers,etc. 2,461(15.4) Investmennt Expenses 3,356(21.1) unit:100mil yen (% of Total) Personnel Expenses 2,529(15.9) Social Assintance 4,004(25.1) City Bonds 1,186(19.2) National/Prefectur e disbursements 3,053(19.2) Operating Expenses 1,475(9.3) Debt Servcing 2,100(13.2) Ⅲ Financial Conditions & Outlook 9

8 Overall Budget (Comparison by city) The City of Osaka s overall budget for FY2008 was the third largest among local governments in Japan, behind only the Tokyo metropolitan government and Osaka Prefecture. 100 mil yen 50,000 40,000 38,560 30,000 20,000 10,000 13,887 33,195 Budget (overall / FY2008) 26,508 16,656 18,382 19, ,855 41,568 0 Osaka Sapporo Yokohama Nagoya Kyoto Kobe Fukuoka Tokyo Osaka Pref Osaka City Budget (overall): The overall budget consists of the general account and 19 special accounts. Special accounts are arranged into the following four categories based on their characteristics: Government Ordinance Special Account, Quasi-Public Enterprise Account, Public Enterprises Account and Debt Servicing Account. Ⅲ Financial Conditions & Outlook 10

9 Municipal Tax Revenue Trends Municipal tax revenue increased 0.9% year-on-year to billion yen This is a slowdown from the rate of increase between FY2006 and FY2007, however tax revenues still remain solid 100mil yen 8,000 7,776 Tax Revenue Trends 7,000 6,000 5, ,294 1,643 6, ,038 6, ,006 6, ,051 6, ,156 6,785 6, ,357 1,383 4,000 1,128 1,289 1,382 1,680 1,697 1,695 Other 3,000 Individual corporate 2,000 4,296 3,420 3,350 3,324 3,160 3,199 3,277 Fixed asset/ City Planning 1, Est budget FY Ⅲ Financial Conditions & Outlook 11

10 Municipal Tax (Comparison by city) Total municipal taxes collected was billion yen, the second largest for any government-designated city. Corporate Inhabitants Tax accounts for a large share of total tax revenue and this has been increasing along with the recovering economy. 100 mil yen 8,000 Total Municipal Tax Revenue (FY2008Budget) Composition of Revenue from municipal taxes (FY2008Budget) Other Fixed Asset/City Planning Corp. Municipal Tax Individual Tax 6,000 4,000 2,000 6,868 2,854 7,324 5,290 2,628 2,794 2, % 90% 80% 70% 60% 50% 40% 30% 20% 10% % 0 osaka sapporo yokohama nagoya kyoto kobe fukuoka O sa ka Sa pp oro Yo koh am a N ag oya Kyo to Ko be F uku oka Ⅲ Financial Conditions & Outlook 12

11 Medium-Term Fiscal Balance (May 2008) Assuming numerical targets of Osaka City s Basic Guidelines for City Management Reform (to FY2010) are met... There will be no fiscal shortfalls up to FY2010. From FY2017 the city will have an annual surplus, though there will be up to a 120 billion yen deficit between FY2011 and FY2016. Costs will be reduced in various ways, including reductions in personnel expenses. (100 mil yen) (General Account) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Ordinary annual balance Annual balance with financial risk Overall annual fiscal balance Accumulated balance No shortfalls as reform plan takes hold Annual Deficit Max. accumulated deficit of 120 billion yen Annual Surplu City Bond Outstanding Forecast (general account) Fiscal management without borrowing from sinking fund Measures required to offset annual average shortfall of 17 billion yen (100 mil yen) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY ,275 27,679 27,264 26,677 26,144 25,277 24,131 22,749 21,808 20,673 19,754 Target: Under 2 trillion yen by FY2018 Ⅲ Financial Conditions & Outlook 13

12 Future Trends for City Bond Outstanding and Debt Servicing As a result of using city bonds to finance city infrastructure and promote business, the City of Osaka must now address redemptions of the accumulated city bond outstanding, which will peak around FY2012. After FY2012, a decrease in the outstanding of city bonds and debt servicing expenses is forecast (September 2007 fiscal balance estimate). Debt Servicing (100 mil yen) 2,600 2,400 2,200 2,000 1,800 1,600 28,932 28,170 28,275 27,679 1,993 1,995 2,100 City Bond Outstanding and Debt Servicing Projections (General Account) 2,206 2,227 2,386 27,264 26,677 Increase of 33.7 billion 2,437 2,424 26,144 25,277 2,350 2,225 2,152 24,131 22,749 21,808 Year-end outstanding Debt Servicing 2,092 20,673 2,035 19,754 Outstanding at FY-end (100 mil yen) 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 1, (Est.) 2008 (budget) ,000 Ⅲ Financial Conditions & Outlook 14