Moody’s upgrades Kiev outlook to Caa3/positive after sovereign upgrade

Moody’s on Sep 1 upgraded the long-term issuer rating of Kiev city to Caa3 from Ca, and the outlook on the rating to positive from stable. On Aug 31, Moody’s had upgraded Ukraine’s second biggest city, Kharkov, to Caa2/positive from Caa3/stable. In both cases, the upgrades were thanks to Moody’s earlier decision from Aug 25 to upgrade the sovereign rating to Caa2/positive from Caa3/stable.

Regarding Kiev, Moody’s said that its operating environment improved on the back of a rapid tax revenue growth and additional taxes allotted to local governments in line with fiscal and administrative reforms. At the same time, Moody’s noted that Kiev’s fiscal independence from the government remains limited, as it derives some 65% of its operating revenue from shared taxes plus an additional 25% from state transfers. Moody’s expects that Kiev will restructure its FX debt by end-2017, following a restructuring of USD449m from Kiev’s two Eurobonds totaling USD550m in 2015. Also, last year Kiev repaid UAH1.9bn (USD73m) worth of domestic bonds. Nevertheless, Moody’s assesses Kiev’s debt burden as relatively high at 56% of operating revenue.

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