MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings upgraded the international ratings of Bogota, Capital District of Colombia. The long-term foreign currency (LTFC) issuer rating of the District and the 9.75% Colombian Peso (COP) denominated notes due 2028 of COP$578,755 million (equivalent to US$300 million at issuance), were upgraded to 'BBB-' from 'BB+'; also the long-term local currency (LTLC) debt rating was upgraded to 'BBB' from 'BBB-'. The Rating Outlook is revised to Stable from Positive.
Such rating actions are the result of a similar revision taken by Fitch last week on Colombia's ratings. Bogota has shown over the past years a strong fiscal performance and manageable debt metrics, however according to Fitch's methodologies and criteria the ratings of the District are capped by Colombia's sovereign risk.
Bogota's ratings are supported by the strong socio-economic profile of the District and weight in the national economy in terms of GDP contribution, the positive financial performance over the past years and proved resilience to adverse shocks, as well as affordable debt levels, high liquidity position and favorable terms and conditions in its financial obligations. Also the ratings incorporate the political risk associated to the public sector and quality management of the administrations in turn.
The District has maintained a solid fiscal management, controlled operational expenditure performance and prudent financing structure. The strategies focused to strengthen and gain efficiencies in local revenues remain as a high priority for the administration. Bogota's current revenues amounted to COP$6.8 billion in 2010 (approximately US$3,568.5 million), whereas fiscal revenues account for the most part with a share of 65.8% while national transfers represent 31.6%. The Fitch-adjusted operating surplus before interest expenses has remained high as percentage of current revenues, maintaining margins in excess of 30% over the last years. Such operating margins are remarkably high compared to international standards, denoting the District's strong fiscal flexibility and payment capacity of financial commitments.
Other credit strengths include the highly valuable assets of the District that generate a consistent stream of capital revenues, strengthening its financial flexibility. Such capital revenues amounted to COP$534,354 million in 2010 (US$281.4 million).
Regarding debt, Bogota's direct debt balance continue with a declining trend registering COP$1,673,199 million as of May 31, 2011. Of such balance 27% is internal debt and 73% is external debt, where most of it is hedged to currency risk. The main risk associated to the debt portfolio such as exchange rate exposure, variable interest rates, debt payout concentration, and liquidity levels, are subject to constant surveillance by the District under prudent practices to mitigate such risks. In 2010, interest payments over operating surplus showed a ratio of 3.2%, which is much lower than the 40% maximum established in the terms of Colombian Law 358. The total debt-to-current revenues ratio reached 25.1%, which is also below the 80% limit established by the same law. Finally, management is not considering a substantial increase in debt in the short term. Although the projected construction of the metro project may lead to an increase in the District's debt (funding participation is expected 70% from the nation and 30% from Bogota, of debt service according with metro's law) the plan remains in an early stage to assess its effect on Bogota's finances.
The main risk or limitations for Bogota are the increasing social and infrastructure needs of a growing population, although these are being addressed through substantial and growing capital expenditures; and the contingent liabilities regarding pension and retirement payments of employees that have been funded partially. Also reputational risk may increase for the District as a consequence of the current corporate governance situation (suspension of the Major), that could lead to higher costs in public works and infrastructure projects.
Additional information is available at 'www.fitchratings.com.'
Applicable Criteria and Related Research:
--'Tax Supported Rating Criteria' (Aug. 16, 2010);
--'International Local and Regional Governments Rating Criteria, Outside the United States' (April 19, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
International Local and Regional Governments Rating Criteria - Outside the United States
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=611485
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