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May 23 (The following statement was released by the rating agency)
Fitch Ratings has affirmed the Region of Veneto's
Long-term foreign and local currency ratings at 'BBB+' and Short-term foreign
currency rating at 'F2'. The Outlooks for the Long-term ratings are Negative,
mirroring those on Italy's sovereign rating. The rating action affects financial
debt outstanding of about EUR1.35bn, including EUR800m bonds, and future direct
KEY RATING DRIVERS
The ratings affirmation reflects Fitch's expectations of an underlying operating
balance of about EUR300m, or 3% of the budget, amid small budget deficits over
the medium term which should limit the debt growth to below EUR2.5bn by 2015.
The rating considers Veneto satisfactory debt service coverage and control on
healthcare sector as well as budgetary pressures downloaded by the national
After a GDP contraction by 3% in 2012, Fitch expects 2% shrinkage in 2013
whereas low household debt at 35% of GDP helps to absorb the impact of the
economic slack due to the weakened manufacturing activity. Exports, particularly
outside EU, will partly offset the decline of internal consumption while
resiliency of tourism flow should curb the surge of the unemployment rate to 8%
in 2014 amid rising labour supply.
As a consequence, Fitch expects stagnant revenues in 2013 - 2014 while a mild
GDP recovery should lead to 3% tax growth in 2015. Corporate failures and
restructuring weigh particularly on the business tax IRAP which is seen to
recover to the 2011 level of EUR3.17bn only by 2015. PIT hikes, forced by the
national government, will largely offset declining IRAP proceeds while the
allocation of VAT remains largely based on equalization needs for the provision
of the health care.
Fitch expects Veneto's operating balance at about EUR300m, or 3% of revenue in
2013 - 2015, down from 4% trend in 2008 - 2012 as costs growth at about 2% in
line with inflation, overtop sluggish revenue. The margin is rather low by
international standards, yet it fully covers debt servicing requirements by 2
times. A tax leeway of about 10% of revenues provides room to absorb possible
Healthcare is not seen by Fitch as a source of major pressure for the regional
finances though it absorbs 75% of the budget and revenues are becoming
increasingly rigid. Good planning and renovation of premises contribute to the
stability of healthcare costs, which Fitch expects to average EUR9.3bn per annum
in 2013 - 2015, amid high standards and specializations which keep attracting
patients from other Italian regions.
The amount of outstanding financial debt may increase towards EUR2.5bn in 2015
from EUR1.35bn in 2012 as the region borrows to fund capital spending committed
but not yet carried out, as highlighted by its unreserved fund balance deficit
of EUR2.5bn at the end of 2012. Fitch expects the debt burden to remain low at
about 25% of revenues, while debt servicing requirements will remain low at
about 2% of the regional budget.
Veneto's liquidity remains satisfactory on average at EUR1bn over the last five
years and Fitch expects it to be partly absorbed as internal stability pact
rules are relaxed to make way for payables to be paid, helping the private
sector to withstand the contraction of liquidity form the banking system. Fitch
estimates Veneto operating payables to be close EUR1.5bn and expects Veneto's
cash to remain above EUR250m by 2015 continuing to cover debt service
requirements by 1x and the fund balance deficit to be overcome by borrowing and
eventually real asset disposal.
Veneto's ratings remain constrained by Italy's as under Fitch's criteria a
subnational cannot be rated above the national government lacking substantive
financial autonomy. Therefore, should Italy's Outlook be revised to Stable,
Veneto's Outlooks would change accordingly if the region continues to perform
alongside projections. Conversely a drop of operating margin in negative
territory or growth of the unreserved fund balance deficit could trigger a
negative rating action.