(The following statement was released by the rating agency)
Apr 05 - Fitch Ratings has revised the Polish City of Zielona Gora’s Outlook to Positive from Stable and affirmed its Long-Term foreign and local currency rating at ‘BBB-’ and Long-term National rating at ‘A-(pol)'.
The Outlook revision to Positive from Stable reflects Zielona Gora’s sound and improved operating performance, its moderate debt and smooth debt amortisation profile. Zielona Gora demonstrates low demand for debt financing in 2012-2014 and solid financial liquidity. The Outlook being moved to positive also factors in its sound strategic and financial management, control on operating expenditure growth and active local tax policy.
Maintenance of a sound budgetary performance with the operating margin at or above the 2011 level coupled with the operating balance sufficient to cover debt-servicing and debt funded capex in line with Fitch’s projections, could trigger a positive rating action.
In 2011 Zielona Gora’s budgetary performance improved. The operating balance increased to 8.5% of operating revenue. Fitch expects the city to maintain a sound operating performance in 2012-2014 with the operating margin averaging about 9%, which would comfortably cover debt service. Additionally, in 2011 Zielona Gora’s balance before debt variation turned positive with the budgetary surplus of PLN11.2m (2010: negative PLN67m). According to Fitch’s projections the city may generate almost balanced budgets, as the pressure on its capital expenditure will be moderate in 2012-2014.
Prudent financial management is demonstrated by the city’s sound budgetary performance, its high liquidity and cost rationalisation which offset the pressure on opex growth. The city’s focus on the tax base expanding by creating favourable conditions for investors and active local tax policy resulted in the recovery of the operating balance and improvement in Zielona Gora’s debt coverage. Fitch expects the city to continue implementing its efficient control on opex and prudent budgetary management in the medium term.
Zielona Gora’s direct debt is moderate. For 2012-2014 Fitch expects the city’s direct risk to decrease to about 37% of current revenue in 2014 from 47% in 2011. The city’s demand for debt financing should remain low in the medium term as Zielona Gora’s annual capex may average PLN65m in 2012-2014. Zielona Gora’s sound liquidity allowed it to repay by anticipation a portion of debt in 2011. PLN47m was paid instead of PLN20m budgeted which Fitch views as positive. Fitch expects the city’s administration to continue this policy throughout 2012-2014.
Zielona Gora is the capital of the Lubuskie Region. It is located in the south-west of Poland and has a population of about 117,000.