TEXT-Fitch upgrades Istanbul to 'BBB-'/Stable

Tue Nov 20, 2012 10:35am EST

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Nov 20 - Fitch Ratings has upgraded Metropolitan Municipality of Istanbul's
(Istanbul or MMI) Long-Term foreign and local currency ratings to 'BBB-' from
'BB+' and Short-Term foreign currency rating to 'F3'from 'B'. At the same time
the agency has affirmed Istanbul's National Long-Term Rating at 'AA+(tur)'. The
Outlooks on all Long-term ratings are Stable.

The upgrades of international ratings reflect the strong economic and budgetary
performance that is correlated with the sovereign credit profile (see 'Fitch
Upgrades Turkey to Investment Grade' dated 5 November 2012, available on
www.fitchratings.com.) MMI's Long-Term foreign currency rating is at the
sovereign level while the Long-Term local currency rating is one notch below the
sovereign and the ratings are not constrained. The ratings also factor in MMI's
high share of external debt in foreign currency (80% of direct debt at end-2011)
exposing it to significant foreign exchange risk in its debt servicing. MMI has
a solid track record in budgetary performance with an operating margin averaging
above 50% since 2007. It also means that despite the strong depreciation of the
Turkish lira in 2011, debt servicing as of the operating balance generated
remained at 43% in 2011.

Istanbul is Turkey's main economic hub contributing close to 23% of national GDP
and more than 40% of national tax receipts. The province is under population
pressure due to strong migratory flows requiring continued transport driven
infrastructure investment focus. Istanbul reports per capita income at around
26% above the national average.

The administration has streamlined its management practices through increased
coordination within the public sector and stronger financial planning. Liquidity
has benefited from higher capital revenue supported by the big-ticket sale of
assets and the strengthening self-funding ability of capital expenditure in line
with declining quasi debt.

Istanbul's quasi debt inflating its direct risk arises from its land transport
entity (IETT) which receives operating and capital transfers in relation to its
earlier incurred debt for metro investments. With the centralised metro
investment implementation at the municipal administration and continued
financial support, direct risk is set to significantly decline from 2014. Given
its dynamic socio-economic profile and international significance Istanbul's
strong investment focus is set to continue. Nevertheless in view of the
projected increase in self-funding ability, MMI has scaled back its future
borrowing plans.

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.

Applicable criteria 'Tax-Supported Rating Criteria', dated 14 August 2012, and
'International Local and Regional Governments Rating Criteria - Outside the
United States ', dated 17 August 2012, are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria - Outside the
United States
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