City of Venice Assigned 'AA' Long-Term Rtgs by S&P.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/26/97--Standard & Poor's today has assigned its double-'A' foreign-currency and local-currency issuer credit ratings to the City of Venice. The local currency outlook is stable. The foreign currency negative outlook reflects the outlook on the Republic of Italy.

The ratings reflect the city's strong economy, based around tourism and manufacturing, good financial performance and low debt burden. The city's financial position is reinforced by special legislation that ensures that the financing of investments related to the safeguard of Venice and its lagoon is carried out by the Italian state.

Venice is a midsize Italian city with about 300,000 inhabitants (0.5% of the total Italian population), spread between the historical center (24% of the population), the mainland (61%), and the islands of the lagoon (14.5%). The city's total population declined by 10% from 1981 to 1991, a pace similar to that recorded in the other main Italian urban centers.

Though it is primarily renowned as a historical and tourist center, Venice's economic base is much more diverse with an important industrial sector and a large harbor. The main industries in Venice are chemicals, petrochemicals, mechanical engineering, and shipbuilding. Its well developed tourist industry means that the city is not very exposed to cyclical downturns, while its manufacturing base also serves to boost economical growth. The city accounts for 5% of the tourism activity in Italy and had 18 million visitors in 1996, 30% more than in 1992.

Both regional and provincial economies are strong and accounted for respectively 9% and 1.6% of the national GDP in 1995. Per capita GVA in the city was equivalent to 138% of the national average in 1995 and per capita GDP for the Veneto region as a whole was 15% above the European Union average in 1992. In recent years, economic growth in the Veneto region and the province of Venice outperformed the Italian economic growth, led by expansion in the manufacturing (textiles, chemicals, fibers etc.) and tourism sectors. The improving profitability is expected to ensure a continuation of this trend.

Venice has a robust financial performance. Its average operating surplus of 4.6% over the past five years has helped limit deficits before debt repayment. Venice revenue base is strengthen by the diversity of revenues. The 30% drop in state transfers during the same period has been more than compensated for by the increase in the occupancy tax (ICI), the tariffs for refuse collection, and the steady growth in revenues from the local casino (20% of operating revenues). Revenue flexibility is significant by Italian standards, but more modest on an international basis. The introduction of cost-control measures and reduction in staff employed directly by the city has ensured that the growth in operating expenditure has been limited to an annual average of 4,5% since 1991. Capital investments represent a larger share of spending (40%) in Venice than in other large Italian cities, given the exceptional needs for the renovation and conservation of the buildings and foundations of the historical center. However, special legislation, means that all investments relating to the renovation, preservation, and depollution of the historical center and the islands of the lagoon are financed and fully assumed by the central government. This system has limited the debt accumulation at the city level. The city's debt burden, at 62% of adjusted operating revenues in 1997 is moderate and is expected to remain stable over the foreseeable future.

FOREIGN CURRENCY OUTLOOK: Negative.

The negative outlook on the foreign currency rating mirrors the outlook assigned to the foreign currency debt of the Republic of Italy.

LOCAL CURRENCY OUTLOOK: Stable.

The outlook on the local currency rating is stable as the city's robust and diversified economic base, together with its low direct investment burden, should help the city maintain a sound financial performance, Standard & Poor's said. -- CreditWire

Copyright 1997, Standard & Poor's Rating Services

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