Fitch Affirms Metropolitan Municipality of Lima's Ratings

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings for the Metropolitan Municipality of Lima (MML) as follows:

--Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BBB+';--Long-Term Local Currency IDR at 'BBB+'.

The Rating Outlook is Stable.

The rating action reflects MML's financial strength, sound operating performance, as well as its manageable debt metrics.

KEY RATING DRIVERSMML's ratings reflect its national importance as the economic and political capital of the country and its high and dynamic collection of municipal taxes, which supports high-margin operations. Despite an expected increase in debt burden, the strong fiscal position of MML will result in manageable debt metrics.

However, the ratings also factor in MML's significant investment plans, a substantial portion of which is expected to be debt funded and which will add pressure to operating expenditure going forward.

MML has the status of a special region with 43 districts within its jurisdiction. It accounts for around 45% of Peru's gross domestic product and for around 28% of the total population of the country. An increasing tax base generated by population growth and the implementation of fiscal policies have led to an increase in municipal income by over 41% since 2011.

In addition to taxes, historically MML also collected toll road payments, but in 2013 this revenue source was transferred to new concessionaries. Although this has resulted in a sharp decline in fees, the overall impact in the operating balance is neutral as the concessionaries are responsible for the roads' maintenance and operations.

Operating margins are strong, and Fitch expects that margins will remain over 35% in the next three years. Strong operating margins are also a reflection of Lima's responsibilities, as they are largely in the area of public transportation and local infrastructure and are, therefore, investment-focused.

MML has defined its capital expenditure program, which will largely be undertaken in 2017-2018. The administration plans the realization of projects for PEN2,179 million that will be partially funded from the city's own resources and debt. Additionally, other projects in the city will be financed by the private sector under PPP schemes but will require some form of availability payments from the municipality.

By March 2016, the debt level was PEN371.9 million (USD113.5 million), representing 64% of its internal debt. External debt is not hedged but has a guarantee from the Peruvian state, and it was issued in 2004 with a maturity longer than 20 years. The debt burden is low with debt as a proportion of current revenue estimated at 36% at year-end 2015. Presently all debt servicing has priority payment through formal and administrative trust deeds, which is a positive rating factor. Fitch would expect any additional debt to also benefit from this trust deed.

The administration plans to use its significant cash balance during 2016 rather than taking on new debt. However, to support its significant capital expenditure plans, the municipality plans to borrow PEN835 million in 2017 with a maturity of not less than seven years. Debt, as a proportion of current revenue, is estimated to reach 80% by year-end 2018. Despite an increase in debt burden, Fitch expects MML's fiscal position and high operating margins to still result in manageable debt metrics. The municipality is also subject to compliance with the Fiscal Rules of Peru's Central Government.

MML has a number of public companies, but these do not represent a significant burden to the municipality either because they are self-financing or because of their limited budget. The only entity that has required significant capital injection to maintain capital adequacy ratios within the minimum required by regulation is the Municipal Savings Bank. Fitch will continue to monitor the banks' financial profiles for changes from recent years' results.

RATING SENSITIVITIESThe current Rating Outlook for MML is Stable, and Fitch's base case scenario does not foresee any developments that would lead to a rating downgrade. However, future developments that may, individually or collectively, lead to a negative action include a significant deterioration in the budgetary performance resulting in operating margins falling below 20% or debt increasing to over 100% of current revenues. In addition a downgrade of the sovereign foreign currency IDR could also trigger a downgrade.

Conversely, if operating margins remain in excess of 40% for the foreseeable future and debt to current revenues does not exceed 50%, then this could trigger an upgrade. A movement in sovereign rating is another factor to consider.

Additional information is available on www.fitchratings.com

Fitch has made an adjustment to the official accounts in order to make MML comparable internationally for analysis purposes. The portion of taxes collected from the property transfer tax, but earmarked to the districts, have been excluded both from revenues and transfers in expenditure, as these were pass-through.

Applicable CriteriaInternational Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878660

Additional DisclosuresDodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009001Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009001Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160715005725/en/

Fitch Ratings
Primary Analyst
Ileana Guajardo
Director
+52 81 8399 9100
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L. Mexico
or
Secondary Analyst
Fernando Mayorga
Managing Director
+34 93 328 8407
or
Committee Chairperson
Gerardo Carrillo
Senior Director
+52 55 5955 1600
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Sabrina Kuykendall Announces Nationwide Launch of University Bound Grant from Texas Headquarters
• Gryzbek Therapy Services Named Top ADHD Testing Provider in Naperville
• Hour9 Launches AI Automation Agency with Process-First Approach, Challenging Assumption That Businesses Should Maximize AI Integration