Action follows weakening of Kazakhstan's credit profile
London, 26 April 2016 -- Moody's Investors Service, ("Moody's") has
today confirmed the Baa3 long-term issuer ratings of the City of
Astana in Kazakhstan. The outlook is negative. Today's action
concludes the review that Moody's initiated on 9 March 2016.
The rating action follows the weakening of Kazakhstan's credit profile
as captured by the downgrade of the government bond rating to Baa3 from
Baa2 with a negative outlook on 22 April 2016. For additional information,
please refer to the related announcement: https://www.moodys.com/research/--PR_347131.
Today's rating confirmation reflects Moody's view that the
city's fiscal position is resilient to a modest increase in systemic pressures,
which was reflected in the one-notch sovereign downgrade.
In addition, the parity with the sovereign's credit strength
reflects the high alignment of the city's finances with the central
government, as well as the city's strategic importance to
the national government (reflected in a high dependence on central government
financing). Astana has a history of strong performance, a
moderate debt level, minimal refinancing risks and high levels of
government transfers. Its gross operating balance to operating
revenues ratio usually exceeded 20% during the last five years.
Astana's debt burden is moderate, with a net direct and indirect
debt (NDID) to operating revenue ratio at 27% in 2015 (14%
in 2014). Loans from the central government accounted for around
two-thirds of the NDID. Moody's believes that despite
an expected increase in debt (NDID to operating revenue ratio will likely
reach over 45% by end-2017) the city's refinancing
risks will remain low. Moody's expects that annual debt repayments
(with the majority relating to contingent obligations) will not exceed
6% of operating revenues during the next five years.
The negative outlook reflects the 1) financial, economic and institutional
linkages between the sovereign and sub-sovereign entities in the
country and 2) potential increase in refinancing pressure stemming from
the rising debt of municipal companies.
The Kazakh government's wide-ranging control over cities' finances,
which significantly reduces local authorities' scope to manage expenditure
and liquidity, demonstrates the financial and institutional linkages
between the central government and Astana.
Similarly, personal income tax and social tax, which account
for the majority of the city's tax income, are highly correlated
to the macroeconomic conditions, further strengthening the links
between the sovereign and the city. Given the decline in oil prices
and Moody's forecasts for lower-for-longer oil prices going
forward, Moody's now expects Kazakhstan's economy to grow at 0%
in 2016 and 1% in 2017. Furthermore, over the medium-term,
Moody's now expects growth to average 3.5%, down from
an average of 6.5% between 2010 and 2013.
--WHAT COULD CHANGE THE RATINGS UP/DOWN
Given the negative outlook, an upgrade of the rating is unlikely.
If systemic pressures abate, the outlook on the rating is likely
to be changed to stable, provided Astana continues to maintain an
adequate performance, with no increase in debt (including debt of
municipal companies) above the projected metrics and low refinancing risks.
A weakening in the sovereign's credit quality reflected in a downgrade
of the government bond rating could exert downward pressure on rating
of City of Astana. The city's rating could also come under
downward pressure following adverse changes in its fiscal policy towards
high financing deficits and the rapidly growing market debt.
The sovereign action required the publication of this credit rating action
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 this entity. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
GDP per capita (PPP basis, US$): 24,108 (2014
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 4.3% (2014 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 7.4%
Gen. Gov. Financial Balance/GDP: 1.8%
(2014 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.7% (2014 Actual) (also
known as External Balance)
External debt/GDP: 71.3% (2014 Actual)
Level of economic development: Moderate level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 21 April 2016, a rating committee was called to discuss the rating
of the Astana, City of. The main points raised during the
discussion were: The systemic risk in which the issuer operates
has materially increased.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2013. Please see the Ratings Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Associate Managing Director
Moody's confirms Astana's Baa3 rating, outlook negative
Moody's Investors Service Ltd.
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London E14 5FA
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