Note: On July 06, 2017, the press release was corrected as follows: the location for the first contact was updated to “Moody's Investors Service EMEA Limited Czech Branch.” Revised release follows.
London, 22 March 2017 -- Moody's Public Sector Europe (MPSE) has today affirmed the long-term
Ba1 issuer ratings of Istanbul, Metropolitan Municipality of ,
Izmir, Metropolitan Municipality of , as well as Turkey's
Housing Development Administration (Toplu Konut Idaresi Baskanligi,
TOKI)'s Ba1 long-term issuer ratings. The existing National
Scale Ratings (NSRs) of Aaa.tr on Izmir and TOKI have also been
affirmed. The outlook on all ratings has been changed to Negative
from Stable.
Today's rating actions were prompted by the deterioration of the
outlook for Turkey's credit profile as captured by Moody's
recent decision to change the outlook on Turkey's Ba1 government
issuer rating to negative from stable. For details, please
refer to the press release: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_363067
The sovereign outlook change indicates heightened systemic risk for Turkish
sub-sovereign issuers, which have close institutional,
operating and financial linkages with the central government.
RATINGS RATIONALE
RATIONALE FOR THE CHANGES IN OUTLOOK TO NEGATIVE
The outlook change to negative of metropolitan municipalities of Istanbul
and Izmir reflects the more challenging operating conditions for local
governments, resulting from the country's weakening economic
prospects. In addition, should the central government decide
to implement austerity measures lower-tier governments would be
exposed in the form of lower state transfers and tax revenues.
Both cities depend on the central government for a substantial portion
of their revenue: 78% of Istanbul's operating revenue
and around 87% in case of Izmir have been government funded over
the past few years.
The negative outlook also reflects the growing fiscal pressure stemming
from Turkish lira fluctuation as it may impact debt service ratios of
metropolitan municipalities of Istanbul and Izmir. We expect Istanbul
to face higher pressure as 97% of its debt is foreign currency
denominated and unhedged, while Izmir has less exposure to the lira
depreciation due to its lower proportion of foreign currency debt (80%
of total debt).
Istanbul's annual debt service requirements on foreign currency
debt in 2016 should have absorbed a relatively high, but still manageable,
13.9% of the city's expected total revenue.
Under the current exchange rates debt service costs for Istanbul should
be around 13.5% of total revenue in 2017. Izmir's
debt service costs are moderate at around 7% of total revenue forecasted
at year-end 2016, which is lower than the prior few years
owing to a more conservative borrowing strategy. Moody's
expects that the debt service costs on foreign currency debt will remain
at similar levels in 2017.
The lengthy maturity and amortizing nature of Istanbul's and Izmir's
debts, as well as their robust operating performances of above 40%
of operating revenue, partially mitigate the pressures associated
with growing debt servicing costs. In addition, both cities
set aside reserve funds to protect debt service payments against a depreciating
lira.
RATIONALE FOR THE AFFIRMATIONS
Following today's affirmations, Turkish sub-sovereign issuers
will continue to be rated in line with Turkey's sovereign rating.
--ISTANBUL AND IZMIR--
The Ba1 rating of Istanbul and Ba1/Aaa.tr of Izmir take into account
the fact that they receive the bulk of their operating revenues from the
central government. These revenues take the form of national taxes
which are collected and then redistributed to metropolitan municipalities
on a monthly basis. Growing central government resources have resulted
in an increase in the two cities' budget volumes. These growing
budget volumes - combined with the cities' disciplined financial
management and close oversight of municipal-related service companies
- have enabled both Istanbul and Izmir to continue to post robust
operating surpluses, at 44% and 45% of projected operating
revenue in 2016, respectively. The cities have also been
able to contain their moderate-to-relatively high debt levels.
Istanbul's debt-to-operating revenue ratio should
have increased to 61% at year-end 2016, from 56%
in 2015; for Izmir, this ratio should have grown to 56%
from 52% during the same period. Official budget projections
for 2017 indicate consistent budgetary results, but an increase
in debt levels for both cities.
Istanbul's large and dynamic economy underpins its rating and over time
has translated into adequate budgetary resources available for financing
public service operations and capital investments -- a lingering
source of pressure for the municipal budget. Similarly, Izmir's
ratings continue to reflect the city's dynamic economy, although
it is smaller than that of Istanbul, as well as its solid budgetary
performances and prudent financial management.
-- TOPLU KONUT IDARESI BASKANLIGI (TOKI)--
The outlook on TOKI's Ba1/Aaa.tr issuer ratings (global and
Turkish national scale) was changed to negative from stable, while
the ratings were affirmed.
TOKI is a not-for-profit public-sector entity that
operates under a central government mandate, with direction from
the prime minister's office. These close institutional linkages,
combined with TOKI's strategic role in executing the government's
housing and urbanisation policies, have resulted in a substantial
asset expansion. These linkages also support its ratings at the
same level as that of the central government. The rating agency
notes that TOKI's credit profile also benefits from solid sales
performance, positive financial results, and its limited debt.
WHAT COULD CHANGE THE RATINGS UP/DOWN
A downgrade of Turkey's sovereign rating would lead to a downgrade of
the sub-sovereigns' ratings. In addition, downward
ratings pressure may also arise from these entities' inability to
overcome upcoming fiscal challenges.
Conversely, a stabilisation of the outlook or an upgrade of Turkish
sub-sovereign ratings would follow a similar action on Turkey's
sovereign rating, given their close financial and operational linkages.
The sovereign action required the publication of this credit rating actions
on a date that deviates from the previously scheduled release date in
the sovereign release calendar, published on www.moodys.com.
The specific economic indicators, as required by EU regulation,
are not available for Istanbul, Metropolitan Municipality of;
Izmir, Metropolitan Municipality of; The following national
economic indicators are relevant to the sovereign rating, which
was used as an input to this credit rating action.
Sovereign Issuer: Turkey, Government of
GDP per capita (PPP basis, US$): 20,420 (2015
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2% (2016 Estimate) (also
known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 8.5%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: -1.2%
(2016 Estimate) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.8% (2016 Actual)
(also known as External Balance)
External debt/GDP: 49.8% (2016 Estimate)
Level of economic development: Moderate level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 16 March 2017, a rating committee was called to discuss the rating
of the Istanbul, Metropolitan Municipality of; Izmir,
Metropolitan Municipality of; Toplu Konut Idaresi Baskanligi.
The main points raised during the discussion were: The systemic
risk in which the issuer operates has materially increased.
The principal methodology used in rating Metropolitan Municipality of
Izmir and Metropolitan Municipality of Instanbul was Regional and Local
Governments published in January 2013.
The principal methodology used in rating Toplu Konut Idaresi Baskanligi
was Government-Related Issuers published in October 2014.
Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The person who approved Toplu Konut Idaresi Baskanligi credit ratings
is David M Rubinoff, MD - Sub-Sovereigns, Sub-Sovereign
Group, Journalists : 44 20 7772 5456, Subscribers :
44 20 7772 5454. The person who approved Metropolitan Municipality
of Izmir and Metropolitan Municipality of Instanbul credit ratings is
Mauro Crisafulli, Associate Managing Director, Sub-Sovereign
Group, Journalists : 44 20 7772 5456, Subscribers :
44 20 7772 5454.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Gjorgji Josifov
Asst Vice President - Analyst
Sub-Sovereign Group
Moody's Investors Service EMEA Limited Czech Branch
Washingtonova 17
110 00 Praha 1 (Prague 1)
Prague,
Czech Republic
Telephone: +420-22-422-2929
David Rubinoff
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
