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Croatia's Zagreb rating faces pressure from Zagrebacki Holding - Moody's

Author Radomir Ralev
Croatia's Zagreb rating faces pressure from Zagrebacki Holding - Moody's Author: Zagreb municipality. License: All rights reserved.

ZAGREB (Croatia), April 10 (SeeNews) - Moody's Investors Service said the Ba2 rating of Croatia's capital Zagreb reflects its satisfactory operating performance and strategic importance but warned against pressure stemming from the 100%-owned public service provider, Zagrebacki Holding.

The rating takes into account the city's low capital spending over the past three years, thus limiting the debt accumulation, Moody's said on Tuesday in a periodic review of the ratings of Zagreb.

The assessment of Zagrebacki Holding's public mandate and its integration with the city's institutions supports the very high likelihood of extraordinary support from the City of Zagreb, Moody's said. "The very high default dependence between Zagrebacki Holding and the City of Zagreb reflects the fact that the holding generates its revenues in the city's boundaries, and is therefore exposed to business cycle fluctuations that might also influence the city's fiscal situation." 

The Ba2 credit profile of Zagrebacki Holding also reflects its strong financial and operational linkages with the City of Zagreb, given its strategic role in executing the city's statutory services and strict control over the company's operations exercised by the city, Moody's said. 

Limited revenue control and low predictability under the institutional framework which exhibits frequent changes, represents a constraining factor for the city's rating. Moody's also considers the City of Zagreb to have a moderate likelihood of extraordinary support from the Government of Croatia (Ba2) in the event that the issuer was to face acute liquidity stress.

In July 2017, Moody's assigned a Ba2 long-term issuer rating to Zagrebacki Holding, saying that its credit quality is closely linked to the credit quality of the City of Zagreb.