Fitch Upgrades City of Szczecin to ‘BBB+’; Outlook Stable

Fitch Ratings-London/Warsaw -24 June 2008: Fitch Ratings has today upgraded the Polish City of Szczecin’s Long-term foreign currency and local currency ratings to ‘BBB+’ from ‘BBB’ and Short-term foreign currency rating to ‘F2’ from ‘F3’. Following the upgrade, the Outlooks for the Long-term ratings have been changed to Stable from Positive.

The upgrades reflect the city’s improved operating performance, high self-financing capacity, good financial management and low direct debt. However, the ratings take also into account the relatively high debt of the city’s companies and pressure on direct and indirect debt
increases. The Stable Outlooks reflect Fitch’s expectations that the city will maintain its good operating performance in the medium-term, with an operating balance of about 13%; its debt ratios and risk stemming from companies are expected to remain moderate in the mediumterm.

A growing economy, rising employment and increasing salaries, along with a developing tax base, boosted the city’s operating revenue, which grew by CAGR of 11.6% in 2004-07. These factors, together with improved financial management and controls on operating expenditure, significantly improved the city’s operating performance in the last two years. The operating balance rose to almost 15% of current revenue in 2006 and 19% in 2007. Fitch expects Szczecin to maintain its good operating performance in the medium-term despite a one-off compensation of PLN38m likely to be paid in 2008 and some legal changes that may reduce PIT revenue.

The city’s strategic and financial management significantly improved since the last local elections in 2006. The city’s authorities appear to have both a vision for the city’s comprehensive development and the ability to implement it.

The city is characterised by low direct debt of PLN201m at end-2007 and relatively high debt of the city’s companies of PLN453m, which together made up 52% of current revenue. In the medium-term, high investment needs will put pressure on the city’s direct and indirect debt
increases, but the city will strive to alleviate it by acquiring EU financing. Despite increasing, Fitch expects the city’s debt ratios to remain strong.

The city of Szczecin, the capital of Poland’s Zachodnio-Pomorskie Region, has around 409,070 inhabitants. The Szczecin sub-region is the wealthiest and the most industrialised in the Zachodnio-Pomorskie Region, but its GRP per capita is still slightly below the national average (by 1% in 2005).

Contact: Elzbieta Kaminska, Warsaw, Tel: + 48 22 338 62 84.

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