Miasto Stoleczne Warszawa

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The outlook on Warsaw’s rating changes - Page 2

causes an increase in financing costs by at least several base points (e.g. 10 base points = 0.1%).

Warsaw is beginning to implement the investment programme connected with the European Union’s 2014-2020 financial perspective. Between 2017 and 2020 the city is going to invest over PLN 10.5 billion in development (the Metro, roads, schools, cultural institutions). To obtain funds, including for its own contribution, Warsaw is planning to issue bonds or take out loans from international institutions, such as the EIB, in the amount of PLN 3.1 billion. A potential lower rating for Poland (and, as a consequence, Warsaw) might increase the costs of obtaining such financing.

Warsaw still stable
Warsaw’s stable financial situation is confirmed by satisfactory operational results, gradually-improving financial results, decreasing debt, a comfortable liquidity situation and the higher capability of generating income from taxes and local fees for a city with district rights, and sound financial management. The specific factors confirming Warsaw’s stability are the following:
•    stable operational results: the city’s operating surplus for the coming years equals about 6.5% of operating revenue,
•    significant capital expenditures: 16.4% of the total annual expenditures on average. In connection with preparing the city for investments under the 2014-2020 EU financial perspective, the city will continue to obtain considerable EU grants,
•    supporting liquidity buffer,
•    stabilised direct debt: Warsaw’s debt will remain low and will be lower than 50% of current income.

A well-developed economy and an affluent population make for further external factors that guarantee a stable financial situation in Poland’s capital city.

Warsaw has currently 6 issued series of bonds, including 5 traded on the stock exchange and one outside the public market. The total value of all issued bonds is PLN 2.2 billion. They are based on a constant interest rate. Moreover, in late 2015 the city’s debt on loans taken out in foreign institutions, such as the EIB and the Council of Europe Development Bank denominated in PLN was PLN 3.66 billion.

A change in the outlook will not affect the servicing costs of Warsaw’s previously-issued bonds, as the conditions of issuance do not change and the document remains as is for the entire period until purchase. The interest rate of the loans taken is also largely constant or based on WIBOR increased by a predefined margin. Moody’s lowered outlook for Poland and Warsaw will not affect the servicing costs of the current debt, as the conditions of financing have already been agreed on and cannot change.