London, 05 June 2018 -- Moody's Public Sector Europe (MPSE) has today placed under review for
downgrade the Ba2 long-term issuer ratings of the Metropolitan
Municipalities of Istanbul and Izmir, as well as the Ba2 long-term
issuer rating of Turkey's Housing Development Administration (Toplu Konut
Idaresi Baskanligi, (TOKI) ). Moody's has also placed under
review for downgrade the existing National Scale Ratings (NSRs) of Aaa.tr
on Izmir and TOKI.
The action follows Moody's decision to place under review for downgrade
the Turkish government bond rating of Ba2 on 1 June 2018. For full
details, please refer to the sovereign press release at: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_384169.
The rating action reflects Moody's assessment of the heightened systemic
risk for Turkish sub-sovereigns due to their close operational
and financial linkages with the Turkish government. 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 Turkey's sub-sovereigns operate.
The direct implications for the ratings of the Metropolitan Municipalities
of Istanbul and Izmir also reflect their lack of special status,
which prevents them from being rated above the sovereign. Metropolitan
Municipalities in Turkey, 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.
RATINGS RATIONALE
RATIONALE FOR THE DECISION TO PLACE RATINGS UNDER REVIEW FOR DOWNGRADE
—ISTANBUL AND IZMIR—
The decision to place under review for 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
changes in legislation, such as tax redistribution. The Metropolitan
Municipalities of Istanbul and Izmir derive between 75%-80%
of their operating revenues from central government shared taxes,
(2) Are strongly dependent on the sovereign's macroeconomic and operating
environment. Istanbul and Izmir's local economic bases are heavily
integrated with that of the national economy, and (3) Are exposed
to increased debt service costs arising from the depreciation of the Turkish
lira, especially for Istanbul, which has a high proportion
of FX-denominated debt. This could exert additional pressure
on both cities' debt service.
—TOPLU KONUT IDARESI BASKANLIGI (TOKI)—
The decision to place under review for downgrade the Ba2 issuer rating
of TOKI reflects the very strong linkages between TOKI and its support
provider, the Government of Turkey. It also takes into account
(1) the credit profile of TOKI, which in Moody's view, is
closely linked to that of its owner, (2) its clear public policy
mandate and its key role in the development of the National Urbanization
and Social Housing Production Plan, and (3) Moody's assessment of
the very high likelihood that the central government would provide timely
support should the entity face acute liquidity stress.
In addition to the outcome of the review of the Turkish sovereign rating,
Moody's will use the review period to examine in detail the liquidity
situation of the two Turkish Metropolitan Municipalities, Istanbul
and Izmir.
WHAT COULD MOVE THE RATINGS UP/DOWN
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 both Istanbul and Izmir,
a strained liquidity situation could trigger a downgrade. In addition,
for Istanbul, downward ratings pressure may also arise from a sustained
growth in debt and debt servicing costs.
An upgrade of the sub-sovereigns' ratings is unlikely given the
review for downgrade and would require an upgrade to Turkey's sovereign
rating.
The sovereign action on Turkey published on Friday 1 June 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 these entities. 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$): 24,986 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 3.2% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 8.5%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: -1.7%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.8% (2016 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.
On 01 June 2018, a rating committee was called to discuss the rating
of Istanbul, Metropolitan Municipality of; Izmir, Metropolitan
Municipality of; and 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 Izmir, Metropolitan Municipality
of and Istanbul, Metropolitan Municipality of was Regional and Local
Governments published in January 2018. The principal methodology
used in rating Toplu Konut Idaresi Baskanligi was Government-Related
Issuers published in August 2017. 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_1113601.
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.
The person who approved Toplu Konut Idaresi Baskanligi credit ratings
is David Rubinoff, MD - Sub Sovereigns, Sub-Sovereign
Group, Journalists Tel: 44 20 7772 5456, Client Service
Tel: 44 20 7772 5454. The person who approved Istanbul,
Metropolitan Municipality of, and Izmir, Metropolitan Municipality
of credit ratings is Mauro Crisafulli, Associate, Managing
Director, Sub-Sovereign Group, Journalists Tel:
44 20 7772 5456, Client Service Tel: 44 20 7772 5454.
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.
Harald Sperlein
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
