S&P affirms 'CCC+' long-term issuer credit ratings on Kiev, maintains stable outlook

MOSCOW. Oct 31 (Interfax) - S&P Global Ratings has affirmed its 'CCC+' long-term foreign and local currency issuer credit ratings on Ukraine's capital Kiev and maintained the stable outlook.

"We now believe that a steep drop in Kiev's tax revenue is unlikely, as shown by its solid financial performance over the first nine months of 2022," Ukrainian media reported, citing the agency's press release published on its website.

S&P expects Kiev's very modest debt service will be covered by accumulated cash reserves held at the state's treasury, it said.

S&P added that it assesses Kiev's stand-alone credit profile (SACP) as being one notch higher than its issuer credit rating.

Kiev'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 its base case, S&P assumes the city will likely meet this payment, given its currently high cash reserves of about 20.5 billion hryvni (about $560 million) as of October 1, 2022, and its management's commitment to fulfil its debt obligations.

As for local currency debt, the city has a credit line from the State Savings Bank of Ukraine (Oschadbank) of 1.2 billion hryvni maturing in 2023-2026, and three local currency bonds totaling 1.1 billion hryvni maturing in 2024-2026. Kiev continues to pay interest on these obligations, which amount to 600 million hryvni over the next 12 months.

S&P estimates Ukraine's real GDP will contract by 40% in 2022, owing to a collapse of exports, consumption, and investment.

The agency projects Kiev's economy will follow the trajectory of the national economy, albeit as the capital, Kiev remains Ukraine's most diversified region. The city contributes more than 20% of national GDP and its GDP per capita is 2x above the national average.

S&P anticipates Kiev will demonstrate relatively solid financial performance in 2022, largely owing to stable tax revenue and the significant downsizing of capital investments. In its base case, S&P assumes that the city's revenue will remain on par with the 2021 level and operating spending will increase by about 15%, which will result in an operating surplus of 4.58 billion hryvni, a surplus after capital expenditures of 2.2 billion hryvni and a surplus after debt repayment of 0.2 billion hryvni.