I. STATEMENT ON RATING

Slovak rating agency granted following ratings to City Dubnica nad Váhom:

Long-term local currency rating    BB- (stable outlook)
Long-term foreign currency rating    B (stable outlook)
Short-term rating    S3

In the category of transactions in Slovak crowns, long-term rating BB- (stable outlook) has been granted to the City Dubnica nad Váhom. In the category of transactions in foreign currencies rating B (stable outlook) has been granted to the City Dubnica nad Váhom. Short-term rating of City Dubnica nad Váhom is S3, which is the best possible short-term rating for the entities attaining long-term rating BB-.

Rationale:

From the political and administrative point of view, city Dubnica nad Váhom is a part of the district Ilava associating 22 municipalities. With the population of 25 995 inhabitants as of May 26, 2001 the city Dubnica nad Váhom ranks to the smaller cities. At the present, the city being the centre of engineering and electrical industries in the past, has no strong business background due to bankruptcy of substantial business entities operating in these sectors and the business area is represented mainly by small companies with the Slovak capital in the city.
During 1999-2002, city economy recorded surplus, however, using of it for development activities of the city in coming time periods has been substantially limited. A significant part of the surplus were earmarked funds determined for creation of sinking fund for payment of principal and interest of bonds issued in the amount of SKK 50 million. Despite the fact that the valid legislation specifies minimum of reserve fund created of surplus, it was created only in small extent in last period, resp. it was not created at all. The city had no financial reserves for covering of unexpected occurrence until 2002. We see positively the fact that in 2003, the city used part of funds resulting from surplus realised in 2002 for allocation to so-called compensating fund determined for covering of time discordance between realised city revenues and spent expenditures.
We evaluate the disposal of the city with its property in previous time period as non-standard. This period was characterised by concluding the contracts on sale of city property under conditions being unprofitable for the city. We see positively the fact that the new city management decided on checking of still concluded contracts concerning the disposal with property. In addition, system of internal principles and rules started to be developed, which should lead to making the disposal with property and public finance of the city more transparent.
The city didn't pay adequate attention to the strategic management and to preparation of long-term development conceptions of the city. Therefore, we see positively the fact that an independent strategic development department as well as independent project management department dealing with preparation and definition of projects financed by EU funds as one of the alternative sources of city needs financing is considered to be established in the new organisational structure of the city.
The city has no developed strategy in the area of disposal with the equity participations of the city - it is a matter of companies with equity participation of the city and non-financial organisations established by the city. We see further opportunities in the decision-making process concerning establishment of new companies and investments in existing companies. Processing of detailed analyses of return as well as financial investments and assessment of possible investment affects to the city don't precede the decision making process.
In the past, city tolerated bad management affects of some of its non-financial organisations. Due to lack of information concerning the amount of liabilities taken over from the mentioned organisations, the city was not able to calculate with above mentioned affects in the city budget, whereby pressure on financial flows of the city arose. We see the formation of such serious matter of facts as control mechanism failure of the city.
Please don't hesitate to address your questions to autner@slovakrating.sk, or call +421 2 5464 5151.

Slovak Rating Agency
Bratislava, 08 July 2003

Long-term local currency rating	BB- (stable outlook)
Long-term foreign currency rating	B (stable outlook)
Short-term rating	S3