I. RATING REPORT
The Slovak Rating AgencyTM has assigned the Town of Sečovce the following rating:
| Long-term domestic koruna | BB- (negative outlook)
|
| Long-term foreign currency rating | B- (negative outlook)
|
| Short-term rating | S3
|
The Town of Sečovce was assigned the long-term rating of BB- (negative outlook) in the category of transactions in Slovak koruna. In the category of foreign currency transactions the Town of Sečovce was assigned the rating of B- (negative outlook). The short-term rating of the town is S3, which is the best possible short-term rating for an entity with a long-term rating of BB-.
Justification:
- The payment discipline of the town compared with the preceding period deteriorated mostly as a result of failure to meet the income side of its budget, in particular with regard to income from property tax and the sale of assets, which is perceived negatively by the agency. The volume of liabilities in excess of 60 days in arrears as of 30.9.2004 amounted to SKK 1,570,000, which represents 2.34% of current revenues for 2003. The adverse financial situation of the town is however partially influenced also by the redistribution mechanism for funds from the State to the town for the area of public welfare work, as the funds for reimbursement of expenditure incurred by the town is not refunded until several months later, which puts excessive pressure on the town budget, with this burden being felt much more intensively by smaller towns.
- The town failed to satisfy its mandatory obligation in 2004 toward the Ministry of Finance SR pursuant to the Act on Financial Control and Internal Auditing and it also did not submit its Annual Report on the results of financial control by the legally prescribed term. The agency negatively evaluates the passive approach of the town to this issue, as failure to discharge of the obligations arising from the act may be reason enough for the town not to receive subsidies from national support programmes.
- Reserves are perceived by the agency in respect of the provision of financial transfers and loans to trading companies where the town holds an interest. As of 30.9.2004 the total volume of loans granted by the town was SKK 2,185,000 in arrears, which is in discord with applicable legislation as loans are to be settled by the end of the budgetary year. The concluded loan contracts do not protect the interests of the town to a sufficient extent. Monitoring granted loans is also of an inadequate standard in the conditions of the Town Hall.
- The stance of the town in terms of implementation of investment objectives and projects in support of employment for the upcoming period is active. The agency sees a certain risk in the financing of investments from credit sources however, in particular from the perspective of the adverse financial situation of the town. The agency therefore recommends maintaining a prudent approach to the drawing of new loans and for it to draw new loans in line with the future financial possibilities of the town, as these will depend on the new method of financing local government in 2005.
- Regarding the internal management of the Town Hall, a strong support tool will be the information system that is currently being installed, which is viewed positively by the agency. The agency sees inadequate communication of the town in terms of its promotion.
Please don't hesitate to address your questions to autner@slovakrating.sk, or call +421 2 5464 5151.
Slovak Rating Agency
Bratislava, 14 December 2004