Kiev redeems UAH 300 mln in bonds, Fitch upgrades rating to 'CCC'

MOSCOW. Oct 29 (Interfax) - Kiev redeemed three-year series "M" bonds worth UAH 300 million in September on time, and Fitch Ratings in October upgraded its long-term issuer default rating (IDR) in foreign currency from 'CC' to 'CCC', affirming the long-term IDR in national currency at 'CCC'.

Ukrainian media reported, citing information from the Ukrainian National Securities and Stock Market Commission, that it cancelled the registration of the series "M" bonds on October 28.

According to the commission's register, two more series of Kiev bonds remain outstanding - "N" and "O", issued in the fall of 2021 maturing September 1-3, 2025 and August 31-September 2, 2026, respectively.

Fitch said in a report on October 18 that the rating upgrade was based on the evidenced financial resilience, despite significant financing needs and liquidity risks.

"Fitch expects an increase in the city's and city-guaranteed municipal companies' debt from international financial institutions (IFIs), but the probability of default, particularly over the next 12 months, remains low," Fitch said.

But the agency said that as with other rated Ukrainian cities, there is a very high risk of the issuer's ability to cover debt service with the operating balance weakening unexpectedly over the scenario horizon (2024-2025) due to lower revenue, higher expenditure, or an unexpected rise in liabilities or debt-service requirements.

Fitch said Kiev's ability to reduce spending was limited due to mandatory responsibilities and a volatile expenditure framework affected by damage from the crisis and inflation. The city and its municipal companies face significant underfunding and high investment needs. Combined with already high contributions to municipal companies, this may further strain the city's spending.

Kiev's cash position improved to UAH 8.7 billion at end-2023, compared with UAH 5.9 billion at end-2021, but this mainly results from the suspended investments in 2022, which led to cash accumulation.

Kiev's 'AA(ukr)' National Rating is the highest possible rating corresponding to the 'CCC' LTLC IDR. The city's diversified revenue base and existing spending flexibility, proven by significant spending cuts in 2022, show that, like other Ukrainian local and regional governments, it is in a stronger position than national peers from other asset classes.

Kiev's domestic bond ratings are aligned with the city's long-term IDRs, the publication said.

Fitch assumes Kiev's operating revenues will grow 12.9% on average per year in 2024-2025, mainly due to tax revenue growth of 14.1%, supported by regular increases in the minimum wage and an expected recovery in the national economy with real GDP growth of 3.2% in 2024 and 4.4% in 2025.

The agency believes operating expenses will grow 6.6% on average per year, and annual net capital expenditures will average at UAH 35.7 billion.

Fitch said Kiev's population as of January 2022 was 2.952 million, and the average salary was UAH 20,558, compared to UAH 14,014 in Ukraine as a whole.