Fitch affirms ‘outlook stable’ rating for Romanian City of Oradea

Fitch Ratings has affirmed the Romanian City of Oradea’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB-‘ and Short-Term Foreign Currency IDR at ‘F3′, a press release informs. The Outlooks on the Long-Term IDRs are Stable.

“The affirmation reflects Oradea’s robust financial performance, including sustainable own tax revenues stemming from the good progress of the local economy and improving collection rates. Like all other local governments in Romania, Oradea operates in a supportive regulatory framework. The ratings also take into account its ambitious investment plans, which require a further increase of debt in 2016 and probably 2017. The Stable Outlook reflects Fitch’s view that Oradea will comply with its statutory debt servicing limits and that debt metrics will remain in line with the rating,” the quoted document reads.

2016 is budgeted for Oradea with a margin around 22 percent and investments down to RON152 million and a surplus before debt variation of at least 10 percent. Fitch base case scenario estimates that the city’s operating margins in 2016-2018 to remain in line with the last five years’ average of 24 percent.

Fitch also estimates a surplus before debt variation for 2016-2018, as investment under the current EU budget for 2014-2020 may need some time until it is fully rolled-out.

“Given the city’s track record of investments realised and infrastructural needs, as well as the goal to utilise available investment grants from the EU budget during 2014-2020 we expect direct debt to further increase,” Fitch notes.

Fitch expects that the city’s debt after investment could peak at a still moderate 90 percent of current revenue in 2016 (2015: 81 percent). However, Fitch expects the city’s debt-service and payback ratios will remain in line with its ratings.

“As the capital city of Bihor County, Oradea benefits from its proximity to the Hungarian border and having successfully established an industrial park, the city is attractive to investors and for working purposes. Its unemployment rate is below that of Romania (2015: 6.4 percent) and its wealth level above the national average,” the rating agency concludes.