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, 20 March 2017 -- Moody's Public Sector Europe (MPSE) has today upgraded the City
of Belgrade's long-term issuer rating to Ba3 from B1;
the rating's outlook has been changed to stable from positive.
The rating upgrade and the change in outlook follow similar actions on
Serbia's government bond rating on 17 March 2017. For full
details, please refer to the sovereign press release: https://www.moodys.com/research/Moodys-upgrades-Serbias-issuer-rating-to-Ba3-stable-outlook--PR_363440.
Today's rating action reflects the improving operating environment
of Serbia, as reflected by the upgrade on the sovereign rating.
The rating action also reflects Moody's view that the creditworthiness
of the City of Belgrade is closely linked to that of the sovereign,
as Serbian local governments depend on revenues that are linked to the
sovereign's macroeconomic and fiscal performance.
Institutional framework makes the local governments co-dependent
on the condition of the central budget. In Serbia, half of
local governments' operating revenue is derived from shared taxes
(mostly personal income tax) collected within their jurisdiction,
but is administratively controlled by the central government.
The rating of Belgrade is underpinned by its sound fiscal performances,
with double-digit operating surpluses averaging at 15% of
operating revenue over the last five years. Moody's expects
that the resilient national economic growth and favourable medium-term
prospects will translate into rising receipts from shared taxes and own-source
revenues and thus contribute to an improved credit profile. Thus
far Belgrade has the greatest capacity among Serbian cities to generate
own-source revenues, accounting for additional 45%
of its operating revenue.
Belgrade's rating also takes into account the city's strategic
role in the national economy. The larger and more dynamic economic
base of Belgrade gives it a budgetary advantage over its peers.
Belgrade is the country's largest economic hub, accounting
for about 39% of national GDP and the city's relative affluence
is evident in its GDP per capita, which is 70% above the
The City of Belgrade's rating remains constrained by relatively
higher debt than that of the peers, although the city's net
direct and indirect debt levels declined to 64% of operating revenue
at year-end 2016 from 85% in 2015. However,
Moody's regards Belgrade's debt burden as manageable and expects
its debt service to remain at below 10% of total revenue in 2017-18.
Moody's assumption reflects the city's favourable direct debt
maturity profile, which comprises long-term amortising loans.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on the rating reflects the stable outlook on the sovereign
rating. It also takes into account Moody's expectations of
continued improvement of financial performances of the City of Belgrade,
its adequate liquidity position, and declining and manageable debt
WHAT COULD CHANGE THE RATINGS UP/DOWN
Any upgrade in the sovereign rating would lead to upward pressure on Belgrade's
rating. Moreover, any improvement in the local governments'
expenditure flexibility and ability to raise additional own source revenues
would be considered positively.
Any deterioration in Serbia's rating would likely lead to a downgrade
of Belgrade's rating, as well as any sustained and significant
financial deterioration driven by systemic or individual factors or unexpected
sharp increase in debt.
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 this entity. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
Sovereign Issuer: Serbia, Government of
GDP per capita (PPP basis, US$): 13,699 (2015
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.8% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.5%
Gen. Gov. Financial Balance/GDP: -1.4%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -4% (2016 Actual) (also
known as External Balance)
External debt/GDP: 78.4% (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.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 16 March 2017, a rating committee was called to discuss the rating
of the Belgrade, City of. The main points raised during the
discussion were: The systemic risk in which the issuer operates
has materially decreased.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2013. 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.
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.
Asst Vice President - Analyst
Moody's Investors Service EMEA Limited Czech Branch
110 00 Praha 1 (Prague 1)
Associate Managing Director
Moody's Investors Service EMEA Ltd.
One Canada Square
London E14 5FA
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