October 24, 2013 / 3:37 PM / in 4 years

Fitch Affirms Autonomous Province of Bolzano at 'A'; Outlook Negative

MILAN/LONDON, October 24 (Fitch) Fitch Ratings has affirmed Italy's Autonomous Province of Bolzano's Long-term foreign and local currency ratings at 'A' and Short-term foreign currency rating at 'F1'. The Outlooks are Negative. The rating action affects direct financial debt of EUR86m and future direct borrowing. KEY RATING DRIVERS The ratings reflect the province's budgetary flexibility, as highlighted by its operating margin averaging 25% over 2010-2012 which would help the province to absorb possible external shocks, such as an increase in its contribution to national budgetary consolidation. The ratings are underpinned by Bolzano's special status of autonomy which protects it from unilateral interference by Italy's national government. The special status allows the province to retain 90% of main national taxes generated on its wealthy territory. Unemployment is low at around 4% (Italy: 12%) and GDP per capita is 45% higher than the EU average. In Fitch's base case scenario the operating margin is likely to gradually decline to about 20% in the medium term, assuming the province takes over some of the state responsibilities, ranging from tax police to pensions, from the national government. Although the administration's conservative budget management will likely limit cost growth to about 1%-2% (net of new responsibilities), Fitch expects new responsibilities eventually to drive operating expenses above EUR3.5bn in 2014, up from EUR3.3bn in 2012. Flexibility to postpone investments could help the province to post balanced budgets over the medium term. Under Fitch's base case scenario the province's capital spending could gradually decline to about EUR850m a year in the medium term from EUR1.3bn in 2012. The province plans to offset lower public capital spending by promoting private investments. To this end it passed tax-relief and pro-business measures to promote GDP growth which may mitigate an expected 0.8% GDP contraction in 2013 and sustain a forecast rebound of 1% in 2014. Exports and tourist arrivals will continue to be a source of economic expansion given subdued consumption. Fitch expects direct and indirect debt - including EUR86m debt contracted in 2005 to fund strategic investments in the energy sector and about EUR500m subsidised municipal debt stock - to hover around 25% of the budget over the medium term. Overall liabilities include EUR299m of guarantees, out of which EUR140m were released to support debt-funded investments of 94%-owned subsidiary SEL, a self-supporting multi-utility through which the province is implementing its environmental-friendly policy for the energy sector. Fitch expects provincial overall liabilities to remain below 2x the current balance over the medium term, which is stronger than that of its 'A'-rated peers. Despite the resilience of the province's budget, Fitch downgraded its ratings following Italy's downgrade. With the sovereign rating downgraded to the 'BBB' category, Fitch has narrowed the notching differential between the sovereign and the province to two from three. This is to reflect the risk of increased economic stress weakening the predictability of intergovernmental relations. RATING SENSITIVITIES A negative rating action on Italy's ratings could affect the province's ratings. A decline in the operating margin below 10%, due to a looser grip on spending and/or a fall in revenue, plus a steeper-than-expected growth of direct and indirect debt liabilities would not be commensurate with the current rating and hence may lead to a downgrade. Because the province's ratings are constrained by those of Italy, the Outlooks may be revised to Stable if improvement in the national economy and debt sustainability leads to a revision of Italy's Outlook to Stable. Contacts: Primary Analyst Raffaele Carnevale Senior Director +39 02 87 90 87 203 Fitch Italia S.p.A. 1, Vicolo S. Maria alla Porta 20123 Milan Secondary Analyst Marco Bonsanto Analyst +39 02 87 90 87 260 Committee Chairperson Guilhem Costes Senior Director + 34 93 3238407 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Tax-Supported Rating Criteria," dated 14 August 2012, "International Local and Regional Governments Rating Criteria", dated 09 April 2013 and 'Rating Subnationals above the Sovereign- Outside US, dated 02 May 2012, available on www.fitchratings.com. Applicable Criteria andALL 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.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below