Fitch Affirms Romanian City of Bucharest at 'BBB-'; Outlook Stable

Fitch Ratings has affirmed the Romanian City of Bucharest’s Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’, its Long-term local currency IDR at ‘BBB’ and its Short-term foreign currency IDR at ‘F3’. The Outlooks on the Long-term IDRs are Stable, according to Reuters.

The affirmation reflects Bucharest’s capital status, including being the economic and administrative centre of Romania. The ratings also reflect its above-national average wealth levels, its strong operating performance and its sound debt coverage. They further reflect the city’s high refinancing risk through a bond maturing in 2015, uncertainties over its contingent liabilities and its exposure to the euro exchange rate.

The Stable Outlook reflects Fitch’s expectations that Bucharest will extend its sound budgetary performance, including healthy debt ratios since it has no plans to increase debt in 2014. Fitch assumes real GDP growth to continue in 2014.

Fitch expects Bucharest to maintain its operating margin at around 30% as it has done over the past three years. According to the city, preliminary results for 2013 are pointing to a high 45% operating margin, but this does not take into account certain operating expenditure from other budgets. Pre-financing of investments further improved, the current balance should have been sufficient to fully cover capital expenditure and the city estimates to have achieved an overall surplus. The city expects a margin close to 30% until 2016 but this will be subject to economic growth.

Romania’s GDP grew 2.4% in real terms in 2013 (2012: 0.7%). Fitch expects this to slightly rise to 2.5% and 2.8% in 2014 and 2015, respectively, well above the average of 1.6% achieved in 2007-2011. Local GDP is more than twice as large the national average and given its well-diversified economy. As Romania’s capital, a large number of people are employed in the city’s public administration, and unemployment was less than half of the national average (2012: 7%).

Bucharest’s ratings are at the same level as the sovereign. Maintaining its strong operating performance that ensures investments are largely funded by internal resources, together with debt below 100% of current revenue, would be rating-positive.