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

March 21, 2016 | Cbonds

18 March 2016: Fitch Ratings has affirmed the Ukrainian City of Kyiv's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'CCC' and its National Long-term rating at 'BBB(ukr)' with Stable Outlook.

Fitch has also affirmed the city's senior debt ratings at 'CCC' and 'BBB(ukr)'.

The ratings reflect Kyiv's fragile fiscal capacity, its exposure to refinancing risk on domestic bonds in 2016, limited access to debt capital markets and a volatile macro-economic environment in Ukraine (CCC/C).

Fitch expects Kyiv's finances to remain fragile over the medium term due to the overall weakness of sovereign public finances, the reduced predictability of fiscal policy and a short planning horizon, all exacerbated by the volatile macro-economic trend in Ukraine.

Nevertheless, Kyiv's operating surplus widened to 39% of operating revenue at end-2015 from 21% in 2014, according to our preliminary estimates. This followed reduced operating expenditure, high national inflation (estimated at 48% in 2015) and a change of fiscal regulation in Ukraine in 2015, which boosted operating revenue annual growth to an average 38% in 2014-2015, from a negative 22% in 2013.

Kyiv's external debt reduced materially after the city executed an exchange of its USD550m Eurobonds following a restructuring in December 2015. As the new Eurobonds were issued by Ministry of Finance of Ukraine, relieving the city's balance sheet, we have withdrawn the senior debt 'D' ratings of Kyiv's Eurobonds in December 2015.

The city also restructured its domestic bonds in 2015 when Kyiv extended the maturities of its domestic bonds by 12 months, with new maturities coming due on 10 October and 19 December 2016. The city's outstanding debt as of 11 March 2016 amounted to UAH2.3bn, following the repayment of series 'F' bonds of UAH875m and ahead of schedule of series 'H' bonds of UAH1.975bn. Against a backdrop of potentially volatile finances, the city remains exposed to refinancing risk on its domestic bonds, due to the short- term nature of the debt and limited access to debt capital markets.

Offsetting these risks is Kyiv's improved liquidity to UAH1.6bn at end-2015 from UAH647m in 2014 following cost optimisation and rising revenue from taxes and transfers from the central government.

According to its recently updated economic forecasts Fitch projects mild annual growth of the Ukrainian economy in 2016-2017 of 1%-2% after contracting 10.5% in 2015 and 6.8% in 2014, which hampered the city's prospects for economic recovery.

Adverse changes to the city's ability and capacity to refinance or repay its domestic bonds would lead to a downgrade.

A sovereign upgrade, coupled with material reduction in refinancing pressure along with sustained restoration of the city's financial flexibility, would lead to an upgrade.

Company: Kyiv

Full company nameKyiv Municipal Council
Country of riskUkraine


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