Moody’s gives Municipality of Istanbul ‘stable’ rating

The Ba3 issuer rating of the Metropolitan Municipality of Istanbul is based on the city's continuing sound fiscal management, reflected in strong gross operating margins over time and good financial flexibility, Moody's Investors Service said in its annual credit report on the municipality.
The rating also reflects the growing debt burden and fiscal challenges associated with Istanbul's large investment requirements. The stable rating outlook mirrors the outlook on the Turkish Republic and reflects Moody's expectation that the city will continue to manage fiscal pressures and the execution of its capital investment programme by limiting its recourse to debt.
"Turkey's largest municipality, which embraces two continents, retains a pivotal role in the national scenario but also faces huge fiscal pressures in terms of service provision to a large and growing metropolitan area hosting 12.6 mln inhabitants and investment needs, especially relating to transportation infrastructures," said Francesco
Soldi, a Moody's Assistant Vice President and lead analyst.
In Moody's view, the city's budgetary performance and position will continue to be affected by its investment decisions and the implementation of large investments will, inevitably, result in an increase in the financial leverage of the municipality and its related companies.
"Notwithstanding these open issues, Moody's believes Istanbul's budget remains sustainable in view of the city's robust balance sheet, including valuable real and financial assets. The high level of capex and other discretionary spending provides substantial flexibility within the execution of annual budgets," added Soldi.
On July 30, Turkey's Constitutional Court rejected a lawsuit brought by the state prosecutor, who had asked the court to close the ruling AK Party. Moody's expects Turkey's local public sector to benefit from this verdict, which removes the uncertainty regarding the near-term political stability and the relative strength of the country's institutions.