Fitch: Region of Mazowieckie's Liquidity under Close Watch

Thu Apr 17, 2014 11:40am EDT

(The following statement was released by the rating agency) WARSAW/LONDON, April 17 (Fitch) Fitch Ratings says the Polish Region of Mazowieckie's (Mazowieckie; 'BBB'/Negative) liquidity, which has been tightening since 2013, may deteriorate further in the near term, despite a favourable ruling from the Constitutional Tribunal in March 2014. This is because the tribunal verdict, although declaring that Poland's equalisation mechanism for regions is inconsistent with the Constitution of Poland, does not release the region from its obligation to make full contribution to the State under the equalisation mechanism. Further, it is uncertain whether the region's planned request from central government for a PLN400m loan, which it intends to use to balance its budget, will be successful. Fitch expects the region's bank accounts to be seized again by the State if the region continues to fail to pay its overdue contributions of PLN166m under the equalisation mechanism. In April 2014 the court bailiff seized the region's bank accounts to recover its overdue payment for December 2013. Fitch, however, considers that the region continues to possess an adequate capacity for payment of its financial commitements (debt service) and for financing the region's own responsibilities. To smooth out imbalances in cash flows, Fitch expects Mazowieckie to resort to its short-term PLN300m loan, which, however, according to Polish law must be repaid by year-end. To balance its budget for 2014 Mazowieckie intends to request for a state budget loan of PLN400m with a 20-year maturity. However, it is not certain when the loan will be granted. Fitch notes that the state budget loan requested in 2013 failed to materialise. Mazowieckie faces a payment of PLN117m in principal and interest on its debt in 2014. Interest payments of PLN82m will peak in June and December, with the balance being principal scheduled mainly for December 2014. The region also faces an obligation of PLN647m in total under the equalisation mechanism for 2014, in equal monthly instalments of PLN54m. The instalments due in January and February 2014 were paid on time by the region using short-term loans. Short-term loans were also partially used to pay instalments for January-October in 2013 (PLN551m). Although the equalisation mechanism is subject to revision until September 2015 following the tribunal verdict, the region will until then continue to be obliged to make its contributions. Hence Fitch expects the region's operating expenditure should decline significantly, but not immediately. Neverthelss, Fitch believes that the region's finances may benefit from an expected recovery in the economy and consequently in corporate income tax receipts, which accounted for 63% of operating revenue in 2010-2012. As Poland's wealthiest and most populous region, Mazowieckie is obliged, under the equalisation mechanism, to pay a sum each year to central government, equalling 35% of its operating expenditure. The payments to the equalisation mechanism are Mazowieckie's largest operating expenditure item and are a continuing strain on the region's liquidity management. Fitch plans to meet with the region's management soon. The next rating assessment will be no later than 23 May. The Region of Mazowieckie's ratings are as follows: - Long-term foreign currency rating 'BBB', Outlook Negative - Long-term local currency rating 'BBB+', Outlook Negative - Long-term National rating 'A+(pol)', Outlook Negative - EUR50m and EUR32m bonds' Long-term foreign currency rating 'BBB' Contact: Dorota Dziedzic Director +48 22 338 62 96 Fitch Polska S.A. 16 Krolewska Street, Warsaw 00-103 Magdalena Mikolajczak Analyst +48 22 338 62 85 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Malgorzata Socharska, Warsaw, Tel: +48 22 338 62 81, Email: Malgorzata.Socharska@Fitchratings.com. Additional information is available on www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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