By KYIV. Oct 29 (Interfax-Ukraine) – On October 28, 2022, S&P Global Ratings affirmed its ‘CCC+’ long-term foreign and local currency issuer credit ratings on Ukraine’s capital city Kyiv, the outlook remains stable, the company said on its website.
"The stable outlook reflects that on the sovereign and the balance between Kyiv’s high cash reserves and low debt service, and the significant uncertainty stemming from the ongoing war between Russia and Ukraine," it said.
"We now believe that a steep drop in Kyiv’s tax revenue is unlikely, as shown by its solid financial performance over the first nine months of 2022. We expect the city’s very modest debt service will be covered by accumulated cash reserves held at the state’s treasury. We cap our ratings on Ukrainian local and regional governments (LRGs) at the level of the transfer and convertibility (T&C) assessment when the sovereign is rated in the ‘CCC’ category or lower. We therefore affirmed our ‘CCC+’ long-term issuer credit ratings on Kyiv and maintained the stable outlook," the agency said.
"Kyiv’s current liquidity position is sound, with cash reserves exceeding debt service by almost 11x in the next 12 months. The city has only one foreign-currency-denominated debt issue outstanding, $28.8 million maturing in December 2022. In our base case, we assume the city will likely meet this payment, given its currently high cash reserves of about UAH 20.5 billion (about $560 million) as of October 1, 2022, and its management’s commitment to fulfil its debt obligations. Regarding local currency debt, the city has a credit line from the State Savings Bank of Ukraine (Oschadbank) of UAH 1.2 billion maturing in 2023-2026, and three local currency bonds totaling UAH 1.1 billion maturing in 2024-2026. Kyiv continues to pay interest on these obligations," the agency experts stated.
"The rating on Kyiv is constrained by the Russia-Ukraine conflict, which brings significant uncertainties to the city’s economy and financials. Our rating also remains constrained by the very volatile and centralized Ukrainian institutional setting for LRGs, the city’s modest GDP per capita relative to LRGs in other countries, and very weak financial management, in our view. Our ratings are supported by the city’s solid financials so far, high cash reserves, and very low debt-service needs. Kyiv’s tax-supported debt is relatively low in an international context," S&P added.
"Institutional settings remain volatile, exacerbated by the war, and the national economy will have likely contracted by 40% in 2022, but the city is committed to honoring its obligations," it said.
"We estimate Ukraine’s real GDP will contract by 40% in 2022, owing to a collapse of exports, consumption, and investment. Given substantial damage to physical infrastructure and human capital, Ukraine’s medium-term growth prospects are uncertain and hinge on regaining a level of territorial integrity and access to the Black Sea, alongside sizable reconstruction efforts. We project Kyiv’s economy will follow the trajectory of the national economy, albeit as the capital, Kyiv remains Ukraine’s most diversified region. The city contributes more than 20% of national GDP and benefits from a strong labor market. Moreover, its GDP per capita is 2x above the national average," it said.
"We anticipate Kyiv will demonstrate relatively solid financial performance in 2022, largely owing to stable tax revenue and the significant downsizing of capital investments. We project the city’s surplus after capital accounts will equal 3% of total revenue this year, compared with 2.6% in 2021. We understand Kyiv’s balance after capital accounts has been in surplus for the first nine months of 2022. In our base case, we assume that the city’s revenue will remain on par with the 2021 level and operating spending will increase by about 15%," the agency added.
