Statement on rating

The Slovak Rating Agency grants to the City of Humenné the following rating:

Long-term local currency rating	BBB (stable outlook)
Long-term foreign currency rating	BB (stable outlook)
Short-term rating	S2

The granted long-term rating in the category of transactions in Slovak crowns BBB (stable outlook) is two degrees below than sovereign rating of the Slovak republic (A - stable outlook). In the category of foreign currency transactions the City of Humenné was granted rating BB (stable outlook), which is two degrees below the level of sovereign rating of the Slovak republic (BBB - stable outlook). Short-term rating of the City of Humenné is S2, which is the best possible short-term rating for entities reaching long-term rating BBB.

Rationale:

• The City of Humenné is situated in the region of East Slovakia, on the lowland of Laborec, between the mountains Vihorlat and Nízke Beskydy, which is to the west of the confluence of the rivers Laborec and Cirochy, 79 km to the northeast of Košice, 76 km to the east of Prešov. From the political and administrative point of view Humenné is the seat of the district of Humenné which associates 61 municipalities. With the area of 2 867 ha Humenné is the second largest city of Zemplin region. With the population of 35 960 inhabitants as at 31 December 200 the city ranks among smaller Slovak cities. In spite of underdeveloped technical infrastructure the city has a strong representation of industrial enterprises with Slovak, as well as foreign capital, such as Nylstar Slovakia, a.s. Humenné, Rhodia Industrial Yarns Slovakia, a.s., Humenné, Mecom, a.s. Humenné, Chemes, a.s. Humenné. Although enterprises in Humenné, by their character, are classified to the category of large enterprises the rate of unemployment as at 31 December 2000 is very high and in the district of Humenné it amounts to 22.6 %, which is more than the rate of unemployment in the region of Prešov (22.1 %) but also much more than the nation-wide rate of unemployment (17.9 %).
• In the area of the debt-to-equity ratio structure the City of Humenné achieves almost 1% of indebtedness and in the debt-to-total-revenues ratio almost 6.5% of indebtedness, which we consider as positive values of these indicators. Tangible fixed assets form significant part of municipal assets. The municipality has been reporting stable budget surpluses at the end of current year. Available volume of funds as at 30 June 2001 was SK 63 693 thousand, by which all liabilities of the city were covered seven times and short-term liabilities 15.8-times. In our opinion there is only a low probability that the municipality would have problems in paying its liabilities in the future.
• In the financial area a relative strength of the city is clearly defined concept in the key areas of local management. In the framework of the basic concept a clear philosophy for the utilization of municipal property is also laid down, whereby eventual sale of property is a targeted process. However the revenue side of municipal budget is less diversified, municipal budget highly depends on tax revenues and in case of reduction of revenues transferred on the part of Government the stability in the revenue area of municipal budget might be affected.
• We can see some reserves in the area of debt management. The city records high volume of bad debts (as at 30 September 2001 almost SK 33 mil.), whereby the highest items are receivables from resale of assets (SK 16.5 mil.), purchased claims from Komunálne služby š.p. (SK 2.5 mil.), bad debts from real estate tax at the amount of SK 12.2 mil. and uncollectible charges at the amount of SK 0.5 mil.. In our opinion the city has problems with payment discipline of businesses as well as natural persons to whom it records receivables. While in case of real estate tax the city is obliged to assess this tax regardless of solvency of the taxpayers, in case of entry in business contract liabilities the city should more thoroughly check the solvency of its potential partners.
• We positively perceive the success of the City of Humenné in the tender for cooperation with the US Agency for International Development (USAID) that implements the project "Slovakia Local Economic Development" in the Slovak Republic. In the framework of this project strategic plans of economic development should be worked out for four Slovak cities (Prešov, Humenné, Trnava and Šaľa). The project manager is the Czech/American company Berman Group established in the market of consultancy in economic development of cities as leader on the field of strategic planning and it will provide the affected cities with consulting support. The formulation of the strategic plan should support economic opportunities related to the growing market of mobile foreign investments directed to the Central and East European countries and the integration of the Slovak Republic to the Euro-Atlantic structures and connected with the preparations to the implementation of structural policy of the European Union in Slovakia. The completion of the project is expected in December 2002.
• The municipality has some reserves in the areas of marketing and promotion of the city, which might lead to higher awareness on the existing potential and tourist attractions of the city. It does not adequately use the available marketing possibilities, e.g. in the form of presentation on the various communication platforms ( internet, etc.)

Slovak Rating Agency
Bratislava, 12 December 2001