RATING REPORT

Slovak Rating Agency confirms the rating of the Town of Skalica as follows:

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

The Town of Skalica was assigned the long-term rating of BBB- (stable outlook) for the category of transactions in Slovak koruna. In the category of transactions in foreign currencies the Town of Skalica was assigned the rating of BB+ (stable outlook). The short-term rating of the Town of Skalica is S2, which is the best possible short-term rating for an entity with a long-term rating of BBB- .

Justification:

• A strength of the town continues to be in the area of strategic planning. The long-term development of the town is based on the key strategic documents that were approved in September 2004, comprising the Development Strategy of the Town of Skalica for the 2004-2020 period and the Tourism Development Concept. The target strategic development goals of the town are based primarily on its geographical position, and its cultural-historical and natural potential, which the agency regards as positive.
  
  
• The financial situation of the town is stable. The economics of the town ended with a surplus also in 2004, which amounted to SKK 18.8 million, representing an 8% share of the total income of the town. A negative impact on the budget of the town in 2004 was the writing off of claims from title of the provision of returnable assistance worth SKK 3.6 million in the past. The values of debt indicators are favourable, reaching the level of 11.41% indebtedness over current income at the end of 2004 (excluding loans of the national housing development fund ŠFRB).
  
  
• The agency positively rates the qualitative changes in the area of municipal companies management. The Town increased its influence on management of a 100 %-owned trading company as well as strengthened the control mechanisms in handling provided financial resources.
  
  
• The agency deems positive the creation of a comprehensive information system, which should be in full operation by the end of June 2005 at the latest. The introduction of the information system will contribute to improving internal management and to reinforcing control mechanisms.