Looking into the books before going for munibonds
One of the chief tasks facing BH will be determining if Wroclaw should take the municipal bond route to raising new capital. Recent events have shown that other municipalities previously keen on bond issues are now starting to waiver on the issue.
Two weeks ago, Gdynia's City Council put off voting on a bond issue proposed by the city's board, with some council members saying that the financial burden on the budget could be too great. The issue will return to the council's agenda at the end of the month.
The zl. 28 million ($11.4 million) issue, which would be lead managed by the Warsaw branch of ING Bank if the city council agrees to the issue, will finance the purchase of 50 new Mercedes buses for the city's public transportation system (WBJ Sept. 8-14).
Krakow City's executive board is still planning to carry out its municipal bond issue. Last week the board accepted a bill that calls for three bond issues at zl. 5 million ($2 million) each to partially finance several infrastructure projects, including a high-speed tram, a transportation center and bridges.
Currently Krakow is accepting offers from financial institutions interested in handling the bond issue. Among those interested are Bank Handlowy SA, Pekao SA, Bank Przemyslowo-Handlowy, Bank Slaski, Bank Wspolpracy Regionalnej, BIG Bank, PKO BP, Kredyt Bank, West LB and ING Bank. Brokerage houses Arabski i Gawor, Pekao SA, Magnus, Penetrator, Polonia and Creditanstalt Securities have also expressed interest in handling the issue.
But once a lead manager is chosen, the question will still remain whether the Krakow city council will give the green light to a bond issue. That's why BH was happy to be chosen as a financial adviser to Wroclaw, and not only lead manager for a bond issue that may or may not happen, as could prove the case in Gdynia.
"We would like to avoid these types of problems," said Jozef Swierkocki, head of BH's fixed income securities department. "We're not going to go there and sell them a product for its own sake. We're not going to push anything on them."
BH has been traveling around to municipalities trying to sell their services to local governments for almost a year now. "We see there is a need to educate municipalities on forms of financing," Swierkocki said. "Municipal treasurers are dealing with huge sums of money, and I think it would be to their benefit to take advantage of our expertise." Representatives from BH presented their offer last week at the gathering of the Union of Polish Cities.
Leontyna Gemza, City of Wroclaw treasurer, said that the city had offers from several banks interested in having Wroclaw as a client, but eventually decided on BH. "It's not only that they were so aggressive, but they had a better offer than the others," Gemza explained. She declined to say in what respects the offer differed from others.
Data compiled by BH show that most municipalities here are overly cautious about using debt instruments as a form of financing. While around 40% of all municipal investments in the European Union are financed by banks, in Poland less than 1% of all local projects are debt financed.
But this doesn't mean that city treasurers should run to their local bank and take out a loan. Most cities are heavily dependent on subsidies from the central government, and any changes in how municipalities share in proceeds from income tax could adversely affect their ability to pay back financial obligations.
That's why BH is introducing an in-house credit rating system for municipalities that (like Standard & Poor's municipal credit rating system) takes into account legal relationships between state and local government, financial policy, state of the budget and country risk.
As Gdynia shows, financial planning in local governments is eventually subject to politicians who may not understand the pros and cons of different forms of financing and the obligations they bring with them.
"Economics doesn't only play a role here - politics also comes into the picture," Swierkocki sighed. "You have to be a diplomat as well as an economist."
Two weeks ago, Gdynia's City Council put off voting on a bond issue proposed by the city's board, with some council members saying that the financial burden on the budget could be too great. The issue will return to the council's agenda at the end of the month.
The zl. 28 million ($11.4 million) issue, which would be lead managed by the Warsaw branch of ING Bank if the city council agrees to the issue, will finance the purchase of 50 new Mercedes buses for the city's public transportation system (WBJ Sept. 8-14).
Krakow City's executive board is still planning to carry out its municipal bond issue. Last week the board accepted a bill that calls for three bond issues at zl. 5 million ($2 million) each to partially finance several infrastructure projects, including a high-speed tram, a transportation center and bridges.
Currently Krakow is accepting offers from financial institutions interested in handling the bond issue. Among those interested are Bank Handlowy SA, Pekao SA, Bank Przemyslowo-Handlowy, Bank Slaski, Bank Wspolpracy Regionalnej, BIG Bank, PKO BP, Kredyt Bank, West LB and ING Bank. Brokerage houses Arabski i Gawor, Pekao SA, Magnus, Penetrator, Polonia and Creditanstalt Securities have also expressed interest in handling the issue.
But once a lead manager is chosen, the question will still remain whether the Krakow city council will give the green light to a bond issue. That's why BH was happy to be chosen as a financial adviser to Wroclaw, and not only lead manager for a bond issue that may or may not happen, as could prove the case in Gdynia.
"We would like to avoid these types of problems," said Jozef Swierkocki, head of BH's fixed income securities department. "We're not going to go there and sell them a product for its own sake. We're not going to push anything on them."
BH has been traveling around to municipalities trying to sell their services to local governments for almost a year now. "We see there is a need to educate municipalities on forms of financing," Swierkocki said. "Municipal treasurers are dealing with huge sums of money, and I think it would be to their benefit to take advantage of our expertise." Representatives from BH presented their offer last week at the gathering of the Union of Polish Cities.
Leontyna Gemza, City of Wroclaw treasurer, said that the city had offers from several banks interested in having Wroclaw as a client, but eventually decided on BH. "It's not only that they were so aggressive, but they had a better offer than the others," Gemza explained. She declined to say in what respects the offer differed from others.
Data compiled by BH show that most municipalities here are overly cautious about using debt instruments as a form of financing. While around 40% of all municipal investments in the European Union are financed by banks, in Poland less than 1% of all local projects are debt financed.
But this doesn't mean that city treasurers should run to their local bank and take out a loan. Most cities are heavily dependent on subsidies from the central government, and any changes in how municipalities share in proceeds from income tax could adversely affect their ability to pay back financial obligations.
That's why BH is introducing an in-house credit rating system for municipalities that (like Standard & Poor's municipal credit rating system) takes into account legal relationships between state and local government, financial policy, state of the budget and country risk.
As Gdynia shows, financial planning in local governments is eventually subject to politicians who may not understand the pros and cons of different forms of financing and the obligations they bring with them.
"Economics doesn't only play a role here - politics also comes into the picture," Swierkocki sighed. "You have to be a diplomat as well as an economist."
