Fitch Affirms City of Porto at 'BB+'; Outlook Positive

Fitch Ratings has affirmed the City of Porto's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BB+'. The Outlooks are Positive. The Short-Term Foreign-Currency IDR has been affirmed at 'B'.

The ratings mirror Fitch's baseline scenario of stable budgetary performance and low debt metrics, in spite of reasonably growth in debt over the medium term. The Positive Outlook reflects that on Portugal (BB+/Positive).

With an estimated population of 214,000 in 2015, Porto is the second-largest cultural, administrative and economic Portuguese centre. The city of Porto provides services to a metropolitan area of 14 municipalities that comprises 1.7 million inhabitants. 

GDP resumed growth in 2014, and is expected to grow around 1.5%-2.0% per year over the next two years, driven by the sound performance of the hotel sector.

According to Fitch's criteria, Porto's ratings remain constrained by the Portuguese sovereign.  Porto's intrinsic credit profile is stronger than its ratings indicate, due to outstanding factors such as the city's healthy budgetary performance, low debt, and sound liquidity. Prudent administration and Porto's role as service centre in north Portugal are also credit positive.

Porto reduced outstanding debt to EUR33.3 million in 2016, from EUR80.1 million in 2015, following a EUR28.7 million expropriation settlement used to redeem debt ahead of schedule. Debt-to-current revenue was at a record low of 18% at end-2016, and the administration plans to take on new debt in 2017 of about EUR20 million, to support rehabilitation of housing and public infrastructure.

Forthcoming Elections are scheduled in October 2017, and Fitch expects the city's wise financial policy to continue. Disclosure of information is fitting and accurate, including the annual financial results of all public bodies within its scope.