Frankfurt am Main, June 18, 2019 -- Moody's Investors Service has today downgraded to B1 from Ba3 the
long-term issuer ratings of the Metropolitan Municipalities of
Istanbul and Izmir. The Aaa.tr National Scale Rating on
Izmir has been affirmed. The rating outlooks on both municipalities
remain negative.
This rating action follows Moody's downgrade, on 14 June,
of the Government of Turkey's bond rating to B1 from Ba3 with negative
outlook and the Turkish foreign currency bond ceiling to B1 from Ba2.
For further information on the sovereign rating action, please refer
to Moody's press release published on 14 June 2019 : https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PR_402552
RATINGS RATIONALE
RATIONALE FOR THE RATING DOWNGRADES
Due to their close institutional, financial and operational linkages
with the Turkish government, metropolitan municipalities,
including Istanbul and Izmir, cannot act independently of the sovereign
and do not have enough financial flexibility to permit their credit quality
to be stronger than that of the sovereign. Therefore, Istanbul
and Izmir are rated on par with the Turkish government bond rating of
B1 negative.
Moody's assessment of both cities' baseline credit assessments (BCAs)
is unchanged at b1, reflecting the two cities' robust operating
performance, predictable shared taxes paid by the government and
representing the vast majority of their revenue, and their large
and diversified economic bases. In Moody's view, these
factors counterbalance their limited cash reserves and significant exposure
to foreign currency debt.
Istanbul's B1 rating reflects its large and diversified economy,
continuing robust operating performance, high self-funding
capacity and valuable asset base, which provides fiscal flexibility
to accommodate increasing capital spending and a strong likelihood that
the Turkish government would provide support if the city was to face acute
liquidity stress. On the other hand, Istanbul's rating is
constrained by its relatively high debt burden, which will remain
elevated during 2019-20 and facing upward pressure on debt servicing
costs given the city's significant exposure to foreign currency
debt.
Izmir's B1 rating reflects its very high and stable operating balance,
exceeding 50% of operating revenue in 2018. Izmir's credit
profile benefits from the third-largest economic base in the country
and a moderate likelihood that the Turkish government would provide support
if the city was to face acute liquidity stress. At the same time,
the rating is constrained by the moderately high indirect debt of municipal-related
entities and the city's high exposure to foreign currency debt.
RATIONALE FOR MAINTAINING THE NEGATIVE OUTLOOKS
The negative outlook on both cities mirrors the outlook of the Government
of Turkey.
WHAT COULD MOVE THE RATINGS UP/DOWN
A downgrade of Turkey's sovereign rating would lead to a downgrade of
the two cities' ratings. For both Istanbul and Izmir, a strained
liquidity situation could trigger a downgrade. Similarly,
for both cities, downward ratings pressure may also arise from a
sustained growth in debt and debt servicing costs.
An upgrade of the two cities' ratings is unlikely given the negative outlook.
An upgrade of Turkey's sovereign rating may exert positive pressure,
provided that both cities display improving idiosyncratic metrics.
The sovereign action on Turkey published on Friday 14 June 2019 required
the publication of these 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 the Metropolitan Municipality of Istanbul and Metropolitan
Municipality of Izmir. 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$): 27,956 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.6% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 20.3%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: -2.6%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.5% (2018 Actual)
(also known as External Balance)
External debt/GDP: [not available]
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 14 June 2019, a rating committee was called to discuss the ratings
of the Istanbul, Metropolitan Municipality of; Izmir,
Metropolitan Municipality of. The main point raised during the
discussion was: The systemic risk in which the issuer operates has
materially increased.
PRINCIPAL METHDOLOGY
The principal methodology used in rating Izmir, Metropolitan Municipality
of and Istanbul, Metropolitan Municipality of was Regional and Local
Governments published in January 2018. Please see the Rating 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.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.
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.
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.
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Mauro Crisafulli
Associate Managing Director
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
