(The following statement was released by the rating agency)
WARSAW/LONDON/MOSCOW, May 23 (Fitch) Fitch Ratings has affirmed
Estonian City of
Tallinn's Long-term foreign and local currency ratings (IDRs) at
'A' with Stable
Outlook. Fitch has also affirmed Tallinn's Short-term foreign
currency IDR at
KEY RATING DRIVERS
The ratings reflect the city's strong financial and debt
projected moderate debt levels over the medium term and its low
liabilities. They also take into account the city's wealthy and
local economy, although it is vulnerable to the economic
downturn in Europe due
to its small size and its reliance on European export markets.
The Stable Outlook reflects Fitch's expectations that the city
will be able to
maintain a stable operating margin of 7%-8% over the medium
term. This will be
supported by effective financial and cost management and by
measures aimed at
strengthening the city's revenue generation capacity.
Tallinn's operating balance for 2013 amounted to EUR32m or 7.4%
revenue, exceeding Fitch's projections. The strong performance
was driven by
higher personal income tax revenue and operating cost savings.
of free public transport in the city in 2013 affected its
by a smaller extent than had been expected by Fitch.
Fitch projects that Tallinn's capital outlays are likely to
average EUR60m per
year for 2014-2016, i.e. 12% of total spending. The city's
is high, with the current balance and capital revenue (including
a high share of
EU grants) covering most of capital expenditure. In 2013,
amounted to a high EUR96m, of which EUR26m was financed with
debt, in line with
Fitch expects the city's direct risk to remain moderate in
2014-2016, at 55% of
current revenue. The city has advanced debt management
practices, aimed at
limiting debt costs and securing a smooth debt repayment
refinancing of existing obligations. The city's cash position is
about EUR30m held in its accounts in 2013.
Fitch expects Tallinn's operating balance to fully cover debt
2014-2016. The debt-to-current balance should improve to six
years by 2016
(2013: 7 years), remaining below its average debt maturity of 11
years. In 2013,
the operating balance was sufficient to cover debt service by
Tallinn's indirect risk is low and is forecast to decrease to
end-2016, from EUR63m in 2013. Its indirect risk is related to
companies' debt-financed investments and counts towards the
city's debt limits.
Tallinn, being the economic centre of Estonia, contributes to at
least 50% of
the national GDP. The diversified and wealthy economy results in
revenue for the city. However, given the country's small size
Europe, the city's economy is vulnerable to economic contraction
Fitch expects Estonia's real GDP will grow by 3%-4% in
2014-2015, up from 0.8%
in 2013 but down from 7.6% in 2011.
The ratings could be downgraded if the city's operating
beyond Fitch's expectations, with its operating balance failing
interest paid by 2x on a sustained basis.
The ratings could be upgraded if the city's operating balance
strengthens to about 10% of operating revenue, accompanied by
stable direct and
indirect risk over the medium term.
+48 22 338 62 96
Fitch Polska S.A.
16 Krolewska Street
+49 69 768076 111
+7 495 956 99 01
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Additional information is available on www.fitchratings.com.
Applicable criteria, 'Tax-Supported Rating Criteria', dated 14
August 2012, and
'International Local and Regional Governments Rating Criteria
States', dated 23 April 2014, are available on
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria -
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