The City of Katowice’s ratings reflect its sound budgetary performance, high liquidity position, strong self-financing capacity, low, albeit increasing, debt and strong debt coverage. The ratings also take into account the dynamic growth of opex, mainly due to the growing rigid spending, projected high capital expenditure of about PLN 2 billion by 2014, to be partly debt financed and growing contingent liabilities.
The Stable Outlooks reflect Fitch’s expectations that the City will maintain its operating performance in 2011-2013, with an operating margin averaging above 15%, that its debt payback ratio will remain sound and that its indirect risk will not affect Katowice’s budget.
An upgrade could result from an upgrade of the sovereign rating accompanied by the continuation of sound budgetary performance.
A downgrade could result from the sustained deterioration of the operating margin far below Fitch’s expectations and a significant rise in debt resulting in weak debt coverage.
Katowice’s operating performance is sound despite the economic slowdown. In 2010 the current balance amounted to PLN 197 million, 15,8% of current revenue, which comfortably covers debt service. Fitch expects the City to continue its solid financial management and maintain an operating margin averaging 15% in the medium term which would comfortably support debt service.
Katowice demonstrates high liquidity. At end-2010 cash amounted to PLN 415 million, exceeding capital expenditure by 14%. It was also 1,4x higher than Katowice’s direct debt. Active cash management ensures the City higher interest from deposits than interest paid. High liquidity and the current balance and capital revenue provide the City with an exceptionally high self-financing capacity which in 2010 amounted to about PLN 718 million, almost 97% higher than capital spending. Fitch believes that Katowice’s liquidity will remain sound in the medium term despite the expected decline in cash funds along with capex implementation.
Katowice’s direct debt remained low in 2010, despite rising by 25%. At end-2010 it amounted to PLN 296,1 million and in relation to current revenue was only 23,7%. Direct debt to current balance was low, about 1,5 years. Fitch expects Katowice’s debt to grow in the medium term but to remain moderate, below 35% of current revenue. Debt service ratios should stay strong and the operating balance comfortably covering debt (service) obligations.
Fitch Ratings is a leading global rating agency committed to providing the world’s credit markets with independent, timely and prospective credit opinions. The agency is dual-headquartered in New York and London, operating offices and joint ventures in more than 51 locations. Fitch Ratings currently maintains coverage of more than 5700 financial institutions, over 2100 corporate issuers and 100 sovereigns.
source: Fitch Ratings