I. STATEMENT ON RATING

Slovak rating agency granted following rating to City Piešťany

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

The granted long-term rating in the category of transactions in Slovak crowns BB (positive outlook). In the category of transactions in foreign currencies rating BB- (stable outlook) has been granted to the City Piešťany. Short-term rating of City Piešťany 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 Piešťany is the seat of the district Piešťany associating 27 municipalities that ranks it among the smaller districts within the Slovak republic. With the population of 30 606 inhabitants as of May 26, 2001 the city Piešťany is one of the smaller cities in Slovakia. Companies in the city are represented especially by Slovak capital and they are operating mainly in the machine as well as electrical industries, in the area of health resorts (spa) and tourism. Unemployment rate of district Piešťany is one of the lowest among all districts within the region of Trnava and reached 9,4 % as of ultimo of 2002. Unemployment rate of district Piešťany is lower than that one of the region of Trnava achieving the value of 13 % as of ultimo of 2002 and at the same time lower than reaching 17,45 % as of ultimo of 2002. Considering the convenient location in term of transportation (distance of the capital of the Slovak republic is 80 km), good technical infrastructure level, quality farmland fund and substantial position in the health resorts, city Piešťany has good conditions for investors.
We see total financial management of the city within last time period as well balanced. During the time period between 1999-2002, the city showed stable surplus, the structure of budgeted revenues of the city is diversified enough and city indebtedness is on acceptable level. Grants and transfers are presented in the budgeted revenues to a great extent (accepted-grants-to-total-revenues ratio reached the value of 13 % as of ultimo of 2001), which is documented by success of the city in acquiring them. In 2002, drawn capital grants represented almost 32 % of capital earnings of 2002. However, we see opportunities in the area of liability management. Volume of liabilities resulting from business relations was too high as of ultimo of 2002 represented the amount of SKK 171 million (47 % of actually realised revenues in 2002). All liabilities are out of maturity and enforced by legal action. Therefore we suggest the city to assure the process of enhanced taking care of receivables and to sue for receivables more effectively. City management is conscious of the mentioned situation and its first step has been the establishment of a commission being concerned with analysis of liabilities on quarterly basis since beginning of 2003.
We see positively the effort of the city management for development of strategic plans of the city in various areas, which were missing in last time periods. Strategic plan of city development is developed by representatives of municipal, business and tertiary area, the association MESA 10 is participating on the mentioned activities as well. Investment plan as well as document concerning the secure credit indebtedness of the city will be a part of the plan, whereby main strategic investment rules will be specified. Further priority interests of the city management are settlement of legal proceedings dated from previous periods and making disposal of city property more transparent.
We see the disposal of the city of public finance and administered property as non-standard in last period. As an example we can mention sale of former municipal enterprise for purchase price of SKK 82 million, but the new owner paid only SKK 15 million. By reason of non-payment of purchase price in the amount of SKK 67 million, the city has taken legal proceedings against him. Legal office pleading city's cause concerning realisation of subject transaction applied for execution suggestion by reason of non-payment of provision for providing legal services in the amount of SKK 17 million (execution suggestion has been withdrawn, but not cancelled). Total loss of the city only in this transaction in case of non-payment of purchase price be new owner (SKK 67 million) and settlement of provision of legal office makes totally SKK 84 million, which represents 20 % of budgeted revenues of the city in 2003. In case of adjudication on necessity of settlement of provision for legal services, the city has no sufficient reserves for payment of subject amount. According to city representatives the city will be obliged to ensure funds for settlement of this liability from nonrecurring earnings (sale of property).
In last time period, the city granted loans to various entities, the creditworthiness of which doesn't guarantee return on loans. As of ultimo of 2002, the position of loans granted by the city represented SKK 9,735 million, thereof loans in the volume of SKK 4,335 million are out of maturity (granted to the companies SBS COOP, s.r.o. and JAMPA Penzion) and return on loan granted to the non-financial institution Služby mesta Piešťany (City service of Piešťany) in the volume of SKK 4 million is at risk as well. Quality on contract documentation on granting loans is unsatisfactory and the interests of the city are not contractually ensured enough. Therefore, we suggest the city to perform legal audit of the mentioned contracts and to try for their revision and update so that the position of the city will get improved in the contractual relationship and the claims ensured.
In our opinion, management of business companies of the city and non-financial institutions on part of the city is not emphatic enough, which is documented also by non-meeting of obligations by some equity participations in relation to the city, especially in conjunction with settlement of loans. The city should tighten the monitoring process not only of companies with equity participation of the city and its non-financial organisations, but also of companies against which he is acting as the creditor. We see further opportunities in decision process of starting of investment projects realised by equity participation of the city. We see the absence in analyses of return on realised investments (from city resources or its equity participation, resp. non-financial organisations), in defining of financing sources and in analyses of possible affects on the city (necessity of increased transfers, settlement of loss).
Cooperation between the city and the municipal corporation is as good. Instrument for further efficiency improvement of the cooperation between the municipal corporation and the city management is the prepared establishment of deputy office and usage of electronic form within the internet access in processing materials specified for negotiations of municipal corporation with the city council.
Please don't hesitate to address your questions to autner@slovakrating.sk, or call +421 2 5464 5151.

Slovak Rating Agency
Bratislava, 24 June 2003

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