Today's actions were prompted by the weakening of the Ukrainian government's credit profile, as captured by Moody's recent downgrade of Ukraine's government bond rating to B3/negative outlook from B2/negative outlook. For more details, please refer to Moody's PR http://www.moodys.com/research/Moodys-downgrades-Ukraines-government-bond-rating-to-B3-from-B2--PR_261348
For additional information on Sovereign ratings, please refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
The downgrade of Ukraine's government bond rating has direct implications for the ratings of the cities of Kyiv and Kharkiv given their institutional, financial and macroeconomic linkages. Moreover, both cities report weak liquidity positions, rigid budget structures and high exposures to inter-budgetary regulation by the national government.
Although Kharkiv's exposure to market volatility is limited, Kyiv is exposed to refinancing risks and displays limited shock-absorption capacity. Kyiv's credit profile is also constrained by the foreign-currency risks arising from the fact that around 36% of its net direct and indirect debt is in foreign currency. Given the external liquidity risks at the national level, its refinancing risks will become an increasingly important factor when assessing the city's creditworthiness over the next 12-18 months. At the same time, Kyiv's position as the Ukrainian capital and national economic hub as well as its more flexible expenditure composition remain mitigating factors for the aforementioned risks.
WHAT COULD CHANGE THE RATINGS DOWN/UP
Downward pressure could develop on Kyiv and Kharkiv's ratings following further downgrade of the sovereign rating and/or material weakening in their standalone fiscal performances. In contrast, a ratings upgrade and/or stabilisation in the rating outlooks of both cities would be possible in case of a similar rating action on the sovereign rating.
The methodologies used in these ratings were Regional and Local Governments Outside the US published in May 2008, and The Application of Joint Default Analysis to Regional and Local Governments published in December 2008. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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Alexander Proklov Vice President - Senior Analyst Sub-Sovereigns Group Moody'sInvestors Service Limited, Russian Branch 7th floor, Four Winds Plaza21 1st Tverskaya-Yamskaya St.Moscow 125047 RussiaDavid Rubinoff MD - Sub-Sovereigns Sub-Sovereigns Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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