(The following statement was released by the rating agency)
Apr 05 - Fitch Ratings has affirmed the Polish City of Warsaw’s National Long-term rating at ‘AAA(pol)’ with a Stable Outlook. Fitch has also affirmed the National Long-term rating of the city’s PLN4bn bond programme and all bonds issued under it at ‘AAA(pol)’ .
Warsaw’s rating reflects the city’s high liquidity buffer, which supports debt service, wealthy and diversified economy and tax base, and projected moderate growth of the city’s debt in 2012-2014. The rating takes also into account weaker operating performance in relation to its peers following the city’s limited steps towards curbing opex growth, as well as further growth of the city’s indirect debt. The Stable Outlook reflects Fitch believe that the city’s operating performance together with high cash at the city’s accounts will secure adequate debt service in the medium term.
Declining cash buffer, not being compensated by adequate improvement of the city’s operating performance in 2012-2014, securing safe debt service, and/or debt growth far exceeding projections, may lead to a negative rating action.
Historically high, cash at the city’s accounts, averaging PLN1.5bn in 2008-2010, rose to PLN2.37bn in 2011, supported by PLN1.44bn proceeds from privatisation. It covered the annual debt service by more than three times. Although the city may partly absorb this ample liquidity in 2012, Fitch expects it to remain high in the next two years, at about PLN1bn.
In Fitch’s view, the city will maintain its operating performance in 2012-2013 in line with the 2009-2011 results, with the operating balance accounting for about 4%-5% of operating revenue. Any further improvement is conditioned upon accelerating tax revenue following economic expansion, as in the current economic climate the city is taking limited actions to hamper opex growth.
Fitch expects Warsaw’s direct debt to slightly increase to above PLN6bn in 2014, but it should not exceed 55% of current revenue. Simultaneously, the city’s indirect debt may double in three years’ time, reaching about PLN4bn in 2014 following investment projects implemented by the municipal companies. The city supports the most essential projects mainly through long-term service agreements with certain companies, eg public transport ones, which may create strong pressure on opex growth in the medium to long term.
Warsaw, Poland’s capital, has more than 1.7 million inhabitants. Its gross regional product per capita is three times the national average. The city’s diversified and wealthy economy results in high tax revenue for the city’s budget, but also exposes the city to the economic cycle.