Ukraine Markets Daily (September 05, 2017)

Market news

  • Moody’s upgraded ratings of the Cities of Kharkiv and Kyiv

Market comment

The UX index decreased by 0.2% yesterday while the PFTS index increased by 0.2% (in UAH terms). The WIG-Ukraine increased by 2.1%. On the interbank exchange market, the USD/UAH was up by 0.4% to UAH 25.87 (mid price), according to Thomson Reuters. The official exchange rate reported by the NBU was UAH 25.75.

 

Moody’s upgraded ratings of the Cities of Kharkiv and Kyiv.

Moody’s Public Sector Europe has upgraded the issuer rating of the Cities of Kharkiv and Kyiv to Caa2 from Caa3 and to Caa3 from Ca respectively. At the same time, the ratings’ outlook was changed to positive from stable for both cities. Local governments depend on revenues that are linked to the sovereign’s macroeconomic and fiscal performance. In particular, budgetary structure of both cities limits its fiscal independence from the sovereign, as Kharkiv gets approximately 49% of its operating revenue from shared taxes and an additional 45% from state transfers, while for Kyiv these parts are about 65% and 25% correspondingly. In addition, as a result of a rapid tax revenue growth and high inflation, Kharkiv and Kyiv increased their operating surpluses to 23% and 37% of operating revenue in 2016 respectively. Meanwhile, the cities’ debt burdens are at the different levels. Kharkiv’s debt is currently very low and is about 7% of operating revenues in 2016, while Kyiv’s debt remains relatively high, representing 56% of operating revenues in 2016.

Our view:

Two more ratings upgrades are connected with the Ukraine’s sovereign rating improvements made by Moody’s earlier. These changes are positive for the cities, as they can increase their chances to attract financing for different municipal programs from different international financial organizations, such as European Bank for Reconstruction and Development (EBRD).

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