Fitch affirms Bucharest’s rating at ‘BBB-‘, with stable outlook

Fitch ratings has affirmed Romania’s capital long-term foreign rating at ‘BBB-‘, local currency rating at 'BBB' and short-term rating at 'F3', with stable outlooks on the long-term ratings. “The affirmation reflects Bucharest's economic profile and wealth levels, which are well above the national average, its strong operating performance and its moderate debt level,” reads a recent statement of the ratings agency. Also, the ratings reflect the volatile cyclicality of Bucharest’s taxes, the high investment needs, high refinancing risks and uncertainties about the contingent liabilities. Fitch’s stable outlook reflects the agency’s “expectations that the sound budgetary performance and moderate debt ratios will continue”. Moreover, the ratings agency assumes that Bucharest will not increase debt in 2013 and in 2014 and the GDP will continue to improve this year, at a moderate pace. Fitch also notes that Bucharest faces a large refinancing risk, when its EUR 500 million eurobond matures in June 22, 2015. “The city plans to issue several loans before then to refinance the bullet repayment but there are no finalised plans,” reads the Fitch statement. Moreover, “Bucharest is looking for an exemption of the legal debt servicing limit in place for Romanian local governments, as debt servicing payments are not allowed to exceed 30 percent of the average of the city's revenues for the past three years,” according to the ratings agency. Fitch expects that the city will obtain a waiver for this breach. Also, Bucharest’s debt is exposed to foreign exchange risk, mainly EUR and USD. The city’s ratings are at the same level as the sovereign, and “keeping the strong operating performance that ensures that a large part of the funding of investment is from internal resources, together with debt below 100 percent of current revenue would be rating positive,” according to Fitch. However, unclear refinancing plans for maturing bond obligations would be rating negative. Irina Popescu, irina.popescu@romania-insider.com