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 released follows.
London, 26 September 2016 -- Moody's Public Sector Europe (MPSE) has today downgraded to Ba1 from Baa3
the long-term issuer ratings of the Metropolitan Municipalities
of Istanbul and Izmir, as well as the long-term issuer rating
of Turkey's Housing Development Administration (Toplu Konut Idaresi Baskanligi,
TOKI), We have affirmed the existing National Scale Ratings (NSRs)
of Aaa.tr on Izmir and TOKI. Today's rating action
concludes the review for downgrade initiated on 19 July 2016. The
outlook is stable.
The action follows Moody's decision to downgrade the Turkey's government
bond rating to Ba1 from Baa3 with a stable outlook on 23 September 2016.
For full details, please refer to the sovereign press release at
https://www.moodys.com/research/Moodys-Downgrades-Turkeys-Issuer-And-Bond-Ratings-To-Ba1-With--PR_354341
The downgrade of the ratings on the metropolitan municipalities of Istanbul
and Izmir reflects their strong institutional, operational and financial
linkages with the Turkish government and the lack of special status,
which prevents the municipalities from being rated above the sovereign.
Metropolitan municipalities in Turkey, including Istanbul and Izmir,
cannot act independently from the sovereign and do not have enough financial
flexibility to permit their credit quality to be stronger than that of
the sovereign.
In addition, institutional linkages intensify the close ties between
the two levels of government through the sovereign's ability to
change the institutional framework under which Turkish municipalities
operate.
RATINGS RATIONALE
--ISTANBUL AND IZMIR--
The decision to downgrade the issuer ratings of Istanbul and Izmir takes
into account the fact that they:
1) Are highly reliant on central government shared taxes and are subject
to potential unpredictable potential changes in legislation, such
as tax redistribution or a cash freeze.
2) Are strongly dependent on the sovereign's operating environment
and its weakened external financing capacity. The main financial
risks for the two cities include potential restrictions on market access
and high volatility in FX exposure.
3) Increased debt service costs arising from the depreciation of the Turkish
lira, especially for Istanbul, which has a high proportion
of FX-denominated debt.
Offsetting these factors, Istanbul's large and dynamic economy and
sound financials will continue to underpin its rating and we expect it
will continue to translate 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 decision to downgrade the issuer rating of TOKI to Ba1 from Baa3 with
a stable outlook reflects the entity's direct institutional linkages
with the Turkish government, and its strategic role in executing
the government's housing and urbanisation policies. 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
An upgrade of sub-sovereigns' ratings will require a similar
change in Turkey's sovereign rating.
A downgrade of Turkey's sovereign rating would lead to a downgrade of
the sub-sovereigns' ratings, given their close institutional,
operational and financial linkages . For Istanbul, downward
ratings pressure may also arise from a sustained growth in debt servicing
costs.
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 Istanbul, Metropolitan Municipality of,
Izmir, Metropolitan Municipality of, Toplu Konut Idaresi Baskanligi.
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$): 20,438 (2015
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 4% (2015 Actual) (also
known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 8.8%
(2015 Actual)
Gen. Gov. Financial Balance/GDP: -0.6%
(2015 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -4.5% (2015 Actual)
(also known as External Balance)
External debt/GDP: 55.4% (2015 Actual)
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.
On 22 September 2016, 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 Ratings 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_189530.
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
