Fitch Affirms Ukraine's City of Kyiv at 'CCC'

Fri Apr 11, 2014 11:36am EDT

(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 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 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 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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