Statement on rating

The Slovak Rating Agency has assigned the following rating to the City of Liptovský Mikuláš:

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

The assigned long-term rating in the category of transactions in Slovak crowns, BBB (stable outlook), is two degrees lower than state rating ( A - stable outlook). In the category of foreign exchange transactions the City of Liptovský Mikuláš was assigned rating BB (stable outlook), which is two degrees bellow the level of risk of the Slovak Republic (BBB- stable outlook). The short-term rating of the City of Liptovský Mikuláš is S2, which is the best possible short-term rating for entities reaching long-term rating BBB.

Reasoning:

• The City of Liptovský Mikuláš is a natural centre of the basin of Liptov. From political and administrative point of view, Liptovský Mikuláš is the seat of the district of Liptovský Mikuláš, which associates 56 municipalities. With a population of 33 007 as per 26 May 2001, the city ranks among smaller cities in the Slovak Republic. It has favorable strategical position, developed industry and educated labour force. The representation of industry is diversified and represented mostly by medium and small-sized enterprises which create enough job opportunities for inhabitants of the city in comparison with other cities, where the rate of unemployment achieves much higher values. The rate of unemployment in the City as per 31.12.2001 amounted to 14.95 %, which is less than the rate of unemployment in the region of Žilina and much less than the national rate of unemployment (18.63 %). The city has a strong representation of industrial companies with Slovak as well as foreign capital, such as SWEDWOOD Slovakia, s.r.o., GABOR s.r.o., LINAPO, s.r.o., Tatra Leder, s.r.o., Liptovská mliekáreň, a.s., GELIMA, a.s..
• Overall liquidity of the City of Liptovský Mikuláš is assessed as positive. Available volume of funds of the city as per 30.6.2001 represented a volume of SK 45.395 mil. and liabilities of the city were in the volume of SK 26.131 mil. (short-term liabilities and debt service as per 6/2001), which means that these liabilities of the city account for 58% of the volume of available funds. However, we see the risk in a guarantee that the city has assumed with the view of securing a public interest of inhabitants of Liptovský Mikuláš, for a bank loan provided to an undertaking entity operating in the territory of the city. Another more risky area are receivables of the municipality from loans that the municipalities provided to different entities in the past and that were not paid under agreed conditions. Although the volume of these loans is not high (balance as per 31.12.2000 was SK 240 thousand), we think that in this area it is necessary to strengthen the process of monitoring the debtors and results of their management.
• We positively assess the development of revenues during the year 2001, where the percentage share of tax revenues decreases and, on the other hand, the percentage share of grants increases, due to which the municipality started to diversify its revenues. Another stable revenue of municipal budget are credits. In our opinion, the municipality should assert the financing of its needs from state budget subsidies in a higher extent in the future, as well as to try to obtain resources from the pre-accession EU funds, gradually reducing its dependence resulting from the orientation to relatively small group of its creditors. A revenue, which becomes one of stable revenues of the municipal budget, are payments from nonprofit organizations of the municipality (positive results of management from their business), particularly from the Housing Enterprise.
• We view positively also the cooperation of the municipality with the business sector. Common projects in different areas prove successful interconnection of business and commercial interests of the private sector with public interests of the municipality. For the support of the existing and new domestic and foreign investors regular meetings of representatives of the largest companies operating in the territory of the municipality with the lord mayor are organized with the view of ensuring mutual communication and exchange of information. The municipality maintains very good cooperation with the tertiary sector, e. g. through the Education Development Fund it supports local schools, different activities in the area of culture and sports etc. The municipality also endeavors and maintains good communication between the self-government and citizens of the municipality, particularly by local press through which it provides the citizens with different information pertaining to the city. Through its own non-profit organization and various marketing, cultural and social events the municipality also develops the effort aimed at the coordination and the support of activities in the area of tourism and promotion of the City of Liptovský Mikuláš and the region of Liptov.
• In the framework of the public administration reform the municipality is prepared to assume competences. We highly appreciate the fact that the municipality initiates regular meetings at the level of the Lord Mayor and persons authorized by him with representatives of the district office in order to acquire relevant information about the state of delimited assets (hidden debt), the amount of decentralization subsidies for the financing of assumed competences (e. g. in the area of education the municipality is prepared to finance repairs of buildings in emergency condition, for which no resources shall be allocated from state budget, from its own reserve fund) and other information about the financing of emerging needs.

Slovak rating agency, Ltd.
Bratislava, 12 February 2002