Fitch Ratings has affirmed the City of Kyiv's Long-term foreign and local currency ratings at 'B-', with Stable Outlooks, and its Short-term foreign currency rating at 'B'.
The agency has also affirmed the city’s National Long-term rating at ‘BBB+(ukr)’ with Stable Outlook. The rating action also affects the city’s outstanding debt issues totalling $800 million.
The affirmation reflects the city’s capital status and implicit support by the
central government, improved budgetary performance, underpinned by sound
economic activity and curbing of spending. The ratings also factor in increased
direct risk, material immediate refinancing risk, stemming from maturing
external bonds and local bank loans, and exposure to foreign currency risk on
eurobonds.
Fitch’s base case is that Kyiv will succeed in refinancing a USD250m bond and
renegotiating repayment of bank loans totalling UAH450m which mature in H212.
The agency considers the city’s immediate refinancing risk as material due to
the significant amount of refinancing and limited capacity of the domestic debt
capital market.
If the city fails to refinance these maturing notes and loans, Fitch would
consider taking negative rating action. Additionally, if there were a material
increase in direct risk above expectations Fitch could take negative rating
action.
Conversely, sustainable sound budgetary performance leading to direct
risk to current balance ratio matching average debt maturities along with
reduced refinancing risk could trigger a positive rating action.
In Fitch’s view, Kyiv’s status as Ukraine’s capital and integration of its
administration into the executive branch of the state remains a support factor
for the city’s ratings.
Kyiv’s political and economic importance to the central
government benefits the city’s budget, reducing downside risks at turbulent
times.
Fitch expects continued improvement in the city’s budgetary performance with the
full-year operating margin at about 11%-12% in 2012.
The agency also expects
Kyiv’s deficit before debt variation to slightly decrease to 7%-9% of total
revenue in 2012-2014. Kyiv’s operating balance improved to UAH1.4bn of operating
revenue, or 9.8% in 2011, up from negative UAH736m in 2010.
Fitch expects the city’s direct risk to increase to UAH11bn in 2012, or 70%-72%
of its current revenue (2011: 67%). The city’s 2011 direct risk stock was 67%
composed of external bonds totalling USD800m, domestic bank loans (13%) and
promissory notes for restructured obligations of utility companies (20%).
Kyiv is Ukraine’s economic and financial centre and accounted for 19% of the
country’s GDP in 2010. Kyiv’s well-diversified and service-oriented economy
supports a strong in the national context socio-economic profile, with wealth
indicators that significantly exceeded the national average in 2007-2011.
The
administration forecasts continued growth of the city’s economy at 4%-5% yoy in
2012-2014.
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
