Reuters logo
Fitch Upgrades City of Tallinn to 'A+'; Outlook Stable
October 20, 2017 / 8:17 PM / a month ago

Fitch Upgrades City of Tallinn to 'A+'; Outlook Stable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: City of Tallinn - Rating Action Report here FRANKFURT/WARSAW/LONDON, October 20 (Fitch) Fitch Ratings has upgraded the Estonian City of Tallinn's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'A+' from 'A' and Short-Term Foreign Currency IDR to 'F1+' from 'F1'. The Outlooks are Stable. The upgrade expresses our view that the city's improvement in fiscal performance is sustainable, which should underpin sound liquidity and strong debt payback and debt service ratios. This, combined with prudent management, should keep the city's net overall risk moderate. The ratings reflect also moderate direct debt, a high self-funding capacity of investments, a well-diversified but modest-sized local economy, and a stable regulatory regime. The Stable Outlook reflects our view that in the medium term Tallinn's credit quality will be in line with 'A+' peers'. KEY RATING DRIVERS The upgrade reflects the following key rating drivers and their relative weights: HIGH Structural Improvement Sustainable: We expect that the city's operating performance will remain sound, with an operating margin of 12%-13% in 2017-2020. We believe that Tallinn's prudent management practices in the last years have allowed the city to overcome its structural limitations. This is demonstrated by the significant improvement of the city's operating margin to 13% in 2016 and an expected 13% for 2017, from an average of 7.4% reported in 2012-2015. The improvement is attributable to the city's efforts to slow operating expenditure growth. Healthy Debt Service: Based on our forecast of a strong current balance we project Tallinn's debt payback ratio (debt/current balance) to improve to an average of 2.5 years in 2017-2020 (2016: 2.8 years), much lower than the average of seven years reported in 2012-2015. Debt service should remain healthy despite its growth to about EUR25 million annually in 2018-2020 from a low EUR12 million in 2017. In addition, the city's sound cash balance should comfortably cover annual debt service by at least 2x during 2017-2020. Sound Management Practice: We expect Tallinn's management practices to remain sound. We believe that the city will continue its strict cost controls and efficiency improvements to strengthen the current balance and secure funds for investments as well as limit debt increase. We also assume that Tallinn will continue with its active debt and liquidity management and will keep contingent liabilities under strict control. MEDIUM Supportive Institutional Framework: We assume the sustainability of Tallinn's sound operating performance should be supported by recent central governments measures aimed at strengthening Estonian local governments. According to the measures, Tallinn should get at least EUR30 million additional personal income tax (PIT) revenue in total in 2018-2020. We expect PIT revenue growth will be also fuelled by expected national economic growth of more than 3% annually and by continuous wage increases of about 5% annually in the medium term. Low Debt Pressure: We expect the city's debt to stabilise in the medium term as it may only fall to EUR180 million at end-2020 from EUR188.6 million at end-2016, although in 2017 it may grow by EUR10 million due to expected larger capital expenditure. Nevertheless, during the forecast period 2017-2020 debt should remain moderate at below 30% of current revenue (2016: 35%). The low debt pressure stems from the city's balanced investment programme and a high self-finance capacity of investments. We project the net overall risk-to-current revenue ratio will fall to 30% by 2020 from an expected 43% at end-2017 (2016: 43%) due to an expected decline in the debt of municipal companies. The city's ratings also reflect the following key rating drivers: Unhedged Interest Rates: More than 90% of Tallinn's debt has unhedged floating rates, but interest-rate risk is limited by the city's prudent debt management and by the city's sound liquidity. Tallinn's cash at end-2016 was more than 4x the city's annual debt service. Although some of the cash will be used to fund investment and repay liabilities arising from long-term co-operation agreements it should cover debt service by about 2x in 2017-2020. Wealthy but Small Economy: Tallinn, as the economic centre of Estonia, contributes more than 50% of national GDP. Its GDP per capita was 167% of the national average in 2016. The unemployment rate in Tallinn was 6.1% in 2016 (2015: 5.4%), just below the national average. The city is service-oriented and its wealthy economy results in high tax revenue for the city. However, reliance on tax revenue leaves Tallinn vulnerable to macroeconomic shocks. RATING SENSITIVITIES The ratings could be upgraded if Tallinn improves its operating performance with an operating margin above 16% on a sustained basis and maintains a debt payback ratio of below two years, providing the sovereign ratings (A+/Stable) are also upgraded. A negative action on Estonia's ratings will be reflected on Tallinn's ratings. Negative rating action could also result from a sustained deterioration in operating performance or a significant rise in Tallinn's direct debt, leading to the city's debt payback ratio exceeding seven years. Contact: Primary Analyst Dorota Dziedzic Director +48 22 338 62 96 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Secondary Analyst Guido Bach Senior Director +49 69 768076 111 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 9901 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below