October 13, 2017 / 8:09 PM / a year ago

Fitch Rates Manisa Metropolitan Municipality 'BB'; Outlook Stable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Manisa Metropolitan Municipality - Rating Action Report here FRANKFURT/LONDON, October 13 (Fitch) Fitch Ratings has assigned Manisa Metropolitan Municipality (Manisa) a Long-Term Foreign Currency Issuer Default Rating (IDR) of 'BB', a Long-Term Local Currency IDR of 'BB+' and a National Long-Term Rating of 'AA(tur)'. The Outlooks are Stable. The 'BB+' Long -Term Local Currency IDR reflects Manisa's strong and stable track record of operating margins averaging at 42%, above the 8.6% median for its international 'BB' category rated peers, due to a buoyant local economy and cost discipline. The ratings also factor in sound debt ratios although increasing capex since Manisa became a metropolitan municipality in 2014 has fuelled debt rise. Nevertheless, we expect debt ratios to remain healthy with direct debt-to- current balance remaining below two years. The 'BB' Long Term Foreign Currency IDR reflects a lack of track record of Manisa's foreign debt servicing capacity, as the city currently does not have foreign debt. However, the city is planning to borrow in foreign currency after 2018. The Stable Outlook reflects expected strong operating performance, which will support the capex-led increase in debt, in turn keeping the direct debt-to-current balance - a measure of debt sustainability - at below two years. KEY RATING DRIVERS The ratings reflect the following rating drivers and their relative weights: HIGH Strong Operating Margins In contrast to other Fitch-rated Turkish Metropolitan Municipalities such as Istanbul (BB+/BBB-/Stable), Izmir (BB+/BBB-/Stable), Bursa (BB/BB/Stable) and Antalya (BB+/BB+/ Negative), Manisa only became a metropolitan municipality recently with the introduction of Law 6360 in 2014. Manisa's shared tax revenue increased in nominal terms by 70.5% yoy in 2013-2014 and the city has also started to receive allocations from the national government to metropolitan municipalities based on their respective population and area, which Fitch classifies as transfers. Shared tax revenue, together with the transfers, boosted operating revenue on average about 80% yoy during 2014-2016, compared with 50% before Manisa's metropolitan status. Operating revenue growth also picked up to 16% yoy during this period, from 10% in 2014. Manisa's operating margins averaged a strong 42% per year over 2012-2016. Although they are moderate compared with its national peers such as Istanbul (56%) and Izmir (57%) these two cities have far stronger financial capacities, together accounting for 36.3% of national GDP. Manisa's operating margins are similar to those of Bursa at 42.3% and far exceed Antalya's 14%. This is mainly due to strict cost control, which enabled the city to adjust its expenses in times of economic slowdown while still carrying out its investments (40% of total expenditure) in 2012-2016. Fitch projects that the city would post operating margins of about 40% in 2017-2019, supported by a diverse tax base, a buoyant local economy and cost restraint. Fitch expects Manisa to gradually increase capex to close to 45% of total expenditure in 2017-2019, which is above Istanbul's and Izmir's 50% and Bursa's and Antalya's near 45%. Seventy per cent of capex will be funded by the current balance and the remainder by borrowing. Sound Debt Ratios Fitch expects that Manisa's direct debt will increase to about TRY613.8 million at end-2019 from TRY277.7 million in 2016. The increase in debt is solely attributable to the infrastructure projects that the city needs to realise within its new metropolitan responsibilities. However, expected strong operating margins should help keep the debt-to-current balance at below two years. At end-2016 Manisa's direct debt amounted to TRY277.7 million, all domestic bank loans. To date, the city has not taken on any foreign debt. However, the administration has plans to borrow in foreign currency for its capex from 2018 onwards, due to favourable terms and conditions. The city also has already contracted bank loans for its expected funding requirements (2017-2018) of TRY510 million. The loans - which are approved by the municipal council - are mainly from Halk Bank, Ziraat Bank, Ziraat Katilim Bank, Vakif Bank (all state-owned banks) and commercial bank Deniz Bank. Manisa's loan portfolio has an amortising structure with no bullet repayments. Its total debt has a weighted average maturity (WAM) of 7.5 years. A longer maturity, together with an amortising debt structure and satisfactory liquidity levels at about 7.3% of its operating revenue, mitigate immediate refinancing risk. Public Sector Newly Formed Manisa's public sector consists of only one public entity (water services provider) and three municipally owned companies operating in public service areas, complementing municipal services. All municipal companies are fully owned by the metropolitan municipality directly, but they have their own budgets and are subject to private law. So far, Manisa has not issued any guarantee on the liabilities of its public sector. Similar to other metropolitan municipalities, the most indebted municipal entity is the water services provider (MASKI). The other companies do not represent indirect risk to Manisa as they have no financial debt. MASKI serves the total metropolitan area (13,810 km2) of Manisa. At end-2016, the entity's debt - all amortising - totalled TRY178.5million. As with Manisa, MASKI does not have foreign debt. MASKI's debt is self-financed and the company has not required any subsidies or transfers from the municipality. MEDIUM Institutional Framework Constraint Manisa's credit profile is constrained by a weak Turkish institutional framework, reflecting a short track record of stable relationship between the central government and the local governments with regard to allocation of revenue and responsibilities in comparison with their international peers. Diversified Economic Base Manisa is a province in Western Turkey located in the Aegean region at the border of Izmir. After Law 6360, the province acquired the Metropolitan Municipality status in 2014 and its boundaries (1,231.8km2) were enlarged to the provincial boundaries (13,228.5 km2). Out of the 30 metropolitan municipalities, Manisa is the 14th-largest city by population and the 19th-largest by budget size. Its GDP per capita (USD 11,112 at end- 2014) was 6% above the mean of metropolitan municipalities' GDP per capita, but 8% below the national average. Nevertheless, its diversified economy means Manisa has a below-national average unemployment rate, at 4.8% at end-2016 versus Turkey's 10.9%. Manisa is the second-largest industry and trade hub in the region after Izmir. Unlike other neighbouring cities, Manisa has a more diverse economic structure that includes industry, agriculture and service sectors. The "Manisa Industrial Zone" is also the seventh-largest in Turkey through employment. Manisa is also rich in mining resources and plays a large role in the country's agriculture, contributing 6% to the sector's output. The city owns one of the richest lignite ores of the country, which is used to produce electricity at the "Soma Power Plant", one of the largest and important production units in Turkey. The mining sector and the Soma Power Plant are significant contributors to the employment base. Manisa's ratings also reflect the following key rating drivers: Coherent Management The city mayor's priorities are to continue the strong budgetary performance so that the metropolitan municipality can undertake large investments. Furthermore the administration is focused on transport, including construction and extension of roads, improving road infrastructure for the newly added metropolitan areas (bridges, underpasses) and creating new parking spaces. RATING SENSITIVITIES A positive rating action could result from sustained reduction of the debt-to-current revenue to below 50% from an expected 70% in 2017-2019, continuing sound fiscal performance with a current balance which covers at least 60% of capex (2016: 71%) and on-budget operating expenditure. A downgrade could result from an inability to both adjust capex in relation to Manisa's current balance and to apply cost control, and a weakening of budgetary performance with the debt-to-current balance ratio rising above four years. Contact: Primary Analyst Nilay Akyildiz Director +49 69 768076 134 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 D - 60311 Frankfurt am Main Secondary Analyst Guido Bach Senior Director +49 69 768076 111 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below