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Fitch Affirms City of Warsaw at 'AAA(pol)'; Outlook Stable

June 13, 2014
Fitch Ratings-London/Warsaw/Frankfurt-13 June 2014: 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)'.

The affirmation reflects improvement in the city's operating performance, following measures to curb operating expenditure growth, and the city's high liquidity buffer supporting debt service. The ratings also take into account the city's wealthy and diversified economy, a strong tax base, and expected stabilisation of direct debt in 2014-2016. It also reflects growth of the city's indirect debt.

Fitch expects the city to maintain its operating performance at about 7% of operating revenue, which will be below 2013's 9.7%, but still above the 5.3% average over 2010-2013. This will be driven by operating expenditure cuts, as evidenced by changes implemented in its budgetary process, and tax revenue growth through expected economic expansion.

Fitch forecasts Warsaw's direct debt for 2014-2016 to remain moderate, at about 50% of current revenue. Fitch takes a positive view of Warsaw's prudent debt management. The agency expects the city's annual capex to reach PLN2.5bn-PLN3bn in 2014 (17%-20% of total spending), from PLN1.9m in 2013 before declining as investments co-financed from the 2007-2013 EU budget taper off. The majority of this capex will be financed by capital revenue (including EU funding) and the current balance, limiting the city's debt financing needs.

In May 2014 the city repaid its EUR200m eurobonds using available cash, temporarily reducing its outstanding debt to PLN5bn (below 45% of projected current revenue for 2014), and at the same time eliminating its FX risk exposure. The city's liquidity buffer has remained strong at PLN1.5bn, benefitting from improved income tax revenue, asset sales and high dividend pay-out from the city's public sector entities.

Fitch expects liquidity to be partially absorbed by capex in 2014-2016, but should remain above PLN700m. For 2013 the city had on average PLN1.7bn of free cash available on its accounts, which covered annual debt service by 3x. Due to the city's high cash levels, net direct debt was only PLN4.1bn at end-2013 or 37% of current revenue.

Due to the investments of municipal companies, Fitch expects the city's indirect debt to rise to about PLN2.7bn in 2015 from PLN2.5bn in 2013. The city supports essential projects mostly through long-term service agreements, mainly with its public transport companies. This may create considerable pressure on operating expenditure and limit the city's budget flexibility in the long term.

The city's diversified and wealthy economy, with a gross regional product per capita at more than 3x the national average, results in high tax revenue for the city's budget (37% of operating revenue in 2013). However, this also exposes the city to economic cycles, which is exacerbated by payments made into the equalisation mechanism. Fitch expects the city's tax revenue to grow in 2014-2015, supported by forecast GDP growth of 3% per year.

Sustained deterioration of operating performance below 2012 results, coupled with a declining cash buffer, and/or debt growth far exceeding projections, may lead to a negative rating action.


Primary Analyst
Maurycy Michalski
Associate Director
+48 22 330 67 01
Fitch Polska S.A.
16 Krolewska Street
Warsaw 00-103

Secondary Analyst
Magdalena Mikolajczak
+48 22 338 62 85

Committee Chairperson
Guido Bach
Senior Director
+49 69 768 076 111

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Malgorzata Socharska, Warsaw, Tel: +48 22 338 62 81, Email: Malgorzata.Socharska@Fitchratings.com.
Company — Warsaw
  • Full name
    Miasto stoleczne Warszawa
  • Registration country