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Fitch affirm Porto's financial requirements at BBB
30-09-2020
Fitch Ratings has affirmed the City of Porto's Budgetary Performance at 'BBB' with a Positive Outlook. Porto´s IDRs are capped by the sovereign ratings (BBB). Porto's Standalone Credit Profile (SCP) is 'aa'. 

The report by the US rating agency Fitch already reflects the impact of the ongoing pandemic on national public finances and as stated by the agency, Fitch assesses Porto`s risk profile at Midrange, reflecting a Stronger assessment for Expenditure Sustainability and Liabilities and Liquidity Key risk factors. The Midrange assessment is derived from Porto's well diversified basket of taxes, with property tax and transfers from central government representing a large part of operating revenues. "The Midrange assessment reflects Fitch view of Low risk that debt service coverage by the operating balance weakens unexpectedly over the horizon 2020-2024", as stated by US agency.

With an estimated population of 214,000, Porto is the second-largest cultural, administrative and economic Portuguese centre, providing services to a greater metropolitan area of around 1.7 million inhabitants. The city's business centre comprises 14 municipalities with 1.5 million inhabitants.

As Porto is the economic centre of a metropolitan area of the same name, and needs to provide services to a high number of daily commuters. The bulk of Porto's responsibilities fall under non-cyclical expenditure items, such as general services to citizens, street cleaning, maintenance of basic equipment. This is the reason why operating expenditure per capita is significantly higher than surrounding cities.

The city's management has demonstrated tight control of expenditure, including the ability to reduce it in times of contraction of revenue. Also, Porto has strong access to liquidity in various forms, and while it does not have any committed bank lines of credit, and Fitch views that if the city needs liquidity it would access it from institutional lenders.

Debt Sustainability is assessed in the 'aaa' Category Under Fitch's rating case for 2020-2024. "Porto's payback ratio will rise to about 3x (score of ?aaa') from negative 1.5x in 2019, reflecting the combination of the city's debt increase with an expected shrinkage of the operating balance."

Fitch describes Porto as the second largest cultural, administrative and economic Portuguese city, an affluent and striking city, with a lot of potential, largely due to having the second-largest airport in Portugal, an active port and a good network of highways. "Porto is an important cultural, administrative and economic centre, providing services to a metropolitan area of about 1.7 million inhabitants, which account for about 15.8% of national GDP."