I. STATEMENT ON RATING
The Slovak Rating Agency TM increased the rating of the City of Košice as follows:
| Long-term koruna rating | B (positive outlook)
|
| Long-term foreign currency rating | B- (stable outlook)
|
| Short-term rating | S3
|
The City of Košice was assigned the long-term rating in the category of transactions in domestic Slovak crowns of B (positive outlook). In the category of foreign currency transactions the City of Košice was assigned the rating of B- (stable outlook). The short-term rating of the City of Košice is S3, which is the best possible short-term rating for entities with a long-term rating of B.
Justification:
- At the present time the City of Košice is elaborating the basic development plan of the city in co-operation with representatives of the business, tertiary and communal spheres, which the Slovak Rating Agency regards as positive, as no such strategic document existed to date at the level of the municipality. This year, also because of an improved financial situation, investment and development programmes of the city are experiencing a revival. The city allocated funds of SKK 80 million from its budget for investment projects, with additional resources set to come from a new syndicated loan, and financing from domestic assistance programmes is also anticipated.
- With regard to the debt servicing of the city, a qualitative change was registered. The drawing of a long-term syndicated loan in April 2004 effectively resolved the balance of debt inherited from the past (the new loan also cleared communal obligations). The Slovak Rating Agency regards this step as a breakthrough in terms of the restructuring of the overall debt of the city, as now the city has greater credibility in the face of external creditors and now represents a serious business partner with standard borrowing conditions. In spite of city becomes serious business partner with standard conditions of credit, will not fulfil antecedents of new budget rules in sense of the word valid legislation from year 2005.
- Compared with the preceding period the renewed financial flows and cash-flow of the city are more stable, which is deemed positive by the agency. Despite this fact, the city still registers liabilities in excess of 60 days in arrears, which as of 31 March 2004 comprised SKK 15.6 million, representing 26% of short-term liabilities. Almost 91% of these liabilities come from previous periods (1998-2002) whereby the liabilities are disputed from the side of the city, i.e. they have not yet passed the legally prescribed lapse term to be written off. The share of liabilities in excess of 60 days overdue that arose in 2003 and 2004 accounted for only 9% of short-term liabilities as of 31 March 2004.
- Qualitative changes were seen also with regard to internal management. Personnel changes in the management of the municipality in particular led to a strengthening of the conceptual and strategic management of the city and the interest shares it holds. The system of information transfer on a vertical and horizontal level improved, and the creation of a comprehensive information system is also a priority for this year for the municipality. A certain delay occurred with the implementation of changes to the organisational arrangement of the municipality management, which is regarded by the agency as negative. It is therefore recommended that the city continue with the process of changes to the organisational structure of the municipality in a way that the new organisational structure ensures the functions and new tasks of the city in a flexible manner.
- The Slovak Rating Agency positively assesses also the changes made regarding the management of trading companies where the city holds an interest, as well as subsidised organisations of the city. At the level of the municipality several materials of a strategic nature were elaborated, which resolve the concept of how to handle specific trading companies and subsidised organisations of the city. The prepared changes in this area project also with the implementation of various unpopular measures in order to avoid the onset of potential negative impacts on the city budget in future. In the agency's opinion, however, it is necessary to continue with already started change processes concerning the management of trading companies and subsidised organisations.
- The agency positively regards the endeavour of the city to introduce rationalisation measures in the area of schooling, which project with savings of SKK 10 million in 2004, and savings of SKK 46 million in 2005. The proposed rationalisation measures are based on the prepared development concept of schooling over the medium-term horizon. With the aim of improving conditions in the area of schooling, the city is trying to acquire funding from the structural funds of the EU, which it plans to use for the complete reconstruction of buildings worth a total of SKK 250 million. Participation of the city in the financing is anticipated from the credit limit of the syndicated loan. A problem arises with the late settlement of liabilities in schooling, which is however caused by a lack of funds allocated from the side of the state.
- The agency sees a certain risk posed by the external environment due to the prepared fiscal decentralization and the new system of communal sphere financing. The change to the system of real estate tax collection and administration is regarded as positive, which in the cities of Košice and Bratislava should be levied and administered by the cities themselves, and not by the city districts.
Please don't hesitate to address your questions to autner@slovakrating.sk, or call +421 2 5464 5151.
Slovak Rating Agency
Bratislava, 01 June 2004