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Fitch Affirms Ukraine’s City of Kyiv at ‘CCC’

(The following statement was released by the rating agency)
MOSCOW, April 11 (Fitch) Fitch Ratings has affirmed the City of
Kyiv’s Long-term
foreign currency Issuer Default Ratings (IDRs) at ‘CCC’ and
Short-term foreign
currency IDR at ‘C’. Fitch has also affirmed the city’s
Long-term local currency
IDR at ‘B-‘ and National Long-term rating at ‘BBB(ukr)’. The
Outlook on the
Long-term local currency IDR and National Long-term rating is
Negative.
Kyiv’s outstanding senior unsecured eurobonds totalling USD550m
(US225407AA34,
US50154TAA34, XS0644750027 and XS0233620235) have been affirmed
at ‘CCC’. Its
domestic bonds totalling UAH5.4bn (UA4000142707, UA4000142715,
UA4000142723,
UA4000142731, UA4000142749 and UA4000142884) have been affirmed
at ‘B-‘ and
‘BBB(ukr)’.
KEY RATING DRIVERS
Kyiv’s ratings reflect the city’s refinancing risk, stemming
from domestic bonds
maturing in October-November 2014, and exposure to foreign
currency risk on
eurobonds, maturing in 2H15. The ratings also reflect Kyiv’s
status as the
capital of Ukraine, and its satisfactory budgetary performance
amid moderately
growing debt.
Fitch expects the city’s direct debt to increase to 62% of
current revenue in
2014 and to 63%-65% in 2015 and 2016 (2013: 61%). Fitch
considers Kyiv’s
immediate refinancing risk as material, as the city is facing
refinancing of
UAH3.5bn worth of domestic bonds in 2H14, while the domestic
capital market’s
limited capacity is currently under stress. The city will also
be refinancing
eurobonds of USD250m and domestic bonds of UAH1.9bn coming due
in 2H15.
Kyiv has two outstanding eurobonds (totalling USD550m)
denominated in US
dollars. The city’s exposure to forex risk has increased
following a 40% decline
in Ukraine’s hryvnia over the past three months.
Fitch expects Kyiv to consolidate its satisfactory budgetary
performance in
2014-2016 with operating margins at above 10%, in line with its
12.5% average in
2013 and 2012. The city’s deficit before debt variation in
Fitch’s base case
scenario is forecast to be under 5% of total revenue in
2014-2016.
Fitch views Kyiv’s status as Ukraine’s capital and the
administration’s
integration with the central government as a support factor for
the city’s
ratings. Kyiv’s political and economic importance to the state
benefits the
city’s budget and limits downside risks at times of distress.
The city’s economy is well-diversified and service-oriented;
Kyiv contributed
18% to Ukraine’s gross domestic product (GDP) in 2012. A sound
socio-economic
profile supports the city wealth indicators significantly above
Ukraine’s
average in 2008-2012. The city’s gross value added (GVA)
increased 1% yoy in
2012.
RATING SENSITIVITIES
Any downgrade of Ukraine would lead to downgrade of the city’s
IDRs. A downgrade
could also result from a rise in debt significantly above
Fitch’s expectations
leading to the city being unable to meet its debt service
obligations.
Conversely, a sovereign upgrade may, however not automatically,
lead to an
upgrade of the city’s ratings.
Contact:
Primary Analyst
Konstantin Anglichanov
Director
+7 495 956 99 94
Fitch Ratings CIS Ltd
26 Valovaya Street
Moscow 115054
Secondary Analyst
Elena Ozhegova
Associate Director
+7 495 956 99 87
Committee Chairperson
Guilhem Costes
Senior Director
+34 93 323 8410
Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495
956 9908, Email:
julia.belskayavontell@fitchratings.com; Peter Fitzpatrick,
London, Tel: +44 20
3530 1103, Email: peter.fitzpatrick@fitchratings.com.
Additional information is available on http://www.fitchratings.com
Applicable criteria ‘Tax-Supported Rating Criteria’ dated 14
August 2012,
‘International Local and Regional Governments Rating Criteria
outside United
States’ dated 9 April 2013 are available at
http://www.fitchratings.com.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
here
International Local and Regional Governments Rating Criteria
here
Additional Disclosure
Solicitation Status
here
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