Istanbul city’s ratings reflect ‘sound fiscal management’, says Moody’s

In its annual report on the Metropolitan Municipality of Istanbul (MMI), Moody’s Investors Service says the city’s Ba3 issuer rating with stable outlook is based on its continuing sound fiscal management, reflected by strong gross operating margins over time and good financial flexibility. The rating also reflects the moderate — albeit growing — debt burden and potential financing requirements for large capital investments.

The stable rating outlook reflects Moody’s expectations that the city will be able to match larger expenditure with higher levels of resources granted by Law 5216 over the longer term and will manage the execution of its large-scale capital investment programme by constraining its recourse to debt.

In December 2006, MMI’s rating was upgraded to Ba3, with stable outlook, from B1, with positive outlook.

As Turkey‘s largest city and main centre of commerce and culture, Istanbul is of central strategic importance for the Turkish economy. MMI’s revenues mainly comprise transfers from the central government, and its financing and funding environment is strongly determined by policies from the centre. As such, its rating is closely tied to that of the Republic.

The challenge of modernising infrastructure for an expanding service area and a growing population of around 12 mln requires high ongoing capital expenditures. This high level of capex and other discretionary spending provides substantial flexibility within the execution of annual budgets.

Istanbul‘s economy has been dynamic and steadily evolving, helping to drive national economic growth. With approximately 12 mln inhabitants, or 16% of the nation’s population, the metropolitan area currently accounts for 23% of Turkey‘s GDP, 46% of national industry, 55% of its exports, and growing levels of tax collections (43% as at year-end 2006). As at the end of the second quarter 2007, Istanbul‘s unemployment rate of 11.4% remains above the national average of 10.3%.

The issuance of this credit report by Moody’s Investors Service is an annual update to the markets and is not a formal action to alter the credit rating of the issuer.