(The following statement was released by the rating agency)
LONDON/WARSAW/MOSCOW, August 01 (Fitch) Fitch Ratings has
affirmed the Polish
City of Katowice's Long-term foreign and local currency Issuer
(IDR) at 'A-'. Fitch has also affirmed the city's National
Long-term rating at
'AA+(pol)'. The Outlooks are Stable.
KEY RATING DRIVERS
The affirmation reflects Fitch's expectation that Katowice will
sound operating performance, despite a weaker 2013, given the
city's still high
flexibility on revenue and spending. The ratings also factor in
decrease in direct debt from 2015 as Katowice aims to finance
mainly from its own sources. This self-financing will partially
city's significant cash reserves although the liquidity buffer
more than sufficient to ensure smooth debt service.
Fitch expects the city to increase its operating balance close
to PLN190m or 12%
of operating revenue by 2017, from PLN147m in 2013, as part of
the city's focus
to improve operating performance over the medium term. In 2013
margin fell to 10.7% as expected by Fitch and was the lowest
level since 2009.
Nevertheless, the operating balance of PLN147m was sufficient to
service (including debt repayments and interest) by 5x.
In Fitch's view, operating revenue growth will only slightly
exceed opex growth
in 2014-2017. This is because despite the city's flexibility on
expenditure, Katowice refrains from significantly raising local
taxes and fees
in order to support local business and the cost of living.
however, is supported by the wealthy economy, a growing tax base
expectations of faster economic expansion in Poland over the
medium term. On
expenditure we expect the city to make the same savings as it
did in the
previous year at 5% of operating expenditure.
Fitch expects Katowice's capex to peak at PLN540m or 30% of
total expenditure in
2014, with the completion of major infrastructural investments,
to average PLN330m annually (20% of total expenditure) in
projects that capital revenue (mainly EU grants) and the current
finance on average 60% of capex. The remainder will be funded
with the city's
high cash reserves and debt (only 2014-2015).
The city's cash reserves of PLN390m at end-2013 will be
partially absorbed by
capex, but should not fall below PLN150m by 2017. This should
still enable the
city to comfortably cover annual debt service, projected by
Fitch at PLN35m on
average. Due to the city's high cash levels, its net direct debt
PLN210m at end-2013 or 15% of current revenue. Cash on deposits
interest than interest paid on its debt in 2013.
As a result of capex funding Katowice's direct debt may rise to
end-2014 or a moderate 47% of current revenue, from PLN600m
(43%) at end-2013.
The city has already secured all its debt-financing needs for
investments, with PLN105m available under the contracted
long-term loans with
European Investment Bank and Council of Europe Development Bank.
From 2015 debt
is likely to decline to 42% of current revenue by 2017, as the
its policy to limit new debt.
Sustainable sound operating performance and declining pressure
to fund capex
with debt could lead to a positive rating action.
Conversely sharper deterioration in the city's debt coverage
than expected by
Fitch, due to a sustained weakening in the operating margin or a
rise in the city's net direct risk, could result in a negative
+48 22 338 62 96
Fitch Polska S.A.
16 Krolewska Street
+48 22 330 67 01
+7 495 956 99 01
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
email@example.com; Malgorzata Socharska,
Warsaw, Tel: +48 22
338 62 81, Email: Malgorzata.Socharska@Fitchratings.com.
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',
dated 23 April
2014, are available on www.fitchratings.com.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria -
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