Vinnytsia`s Upcoming Bond Issue Rated uaBBB-

Credit-Rating, a nationally recognized credit rating agency in Ukraine, reported today that it had assigned a long-term credit rating of uaBBB- to the upcoming issue of municipal bonds by the Vinnytsa City Council. The bonds, worth 10 million hryvnias, will mature on December 31, 2011.

      In the course of its analysis, Credit-Rating considered the city’s financial performance, as well as internal information provided by the council. A borrower or a debt instrument with uaBBB- credit rating is characterized by sufficient creditworthiness when compared to other Ukrainian borrowers or debt instruments. This level of creditworthiness is susceptible to adverse changes in commercial, financial, and economic conditions. The “+” and “– ”modifiers indicate intermediate rating categories.

      Factors supporting the credit rating:

      – The city budget’s general fund has grown steadily over the last 3 years (not including transfers): revenue in 2005 reached 32.6 percent, in 2006 it grew 41.9 percent, and in 2007 it increased by 46.2 percent. Each year the budget growth exceeded expectations.

      – Low-level of direct indebtedness of the city budget as of Jan.1, 2008 (8.1 percent of the budget’s revenue not including transfers) and its further reduction – even in the event of the full placement of the planned amount of local domestic bonds, the indebtedness would amount to 7.2 percent of Vinnytsia budget’s 2008 revenue part not including transfers.

      – Steady growth of the city development indicators in 2004-2007, in particular: retail turnover volume grew 2.8-fold, to 2.3 billion hryvnias; industrial production’s volume of sales grew 2.4 times, up to 2.1 billion hryvnias; volume of direct foreign investment climbed 3.9 times, to $60.6 million.

      – City social development indicators in 2004-2007: average daily quantity of working people (small business’ data not included) rose by 7.3 percent, to 108,400 people, which amounts to 29.6 percent of the overall city population; registered unemployment level stands at 1.4 percent – a lower mark than respective country level (2.4 percent).

      Factors limiting the credit rating:

      – City’s dependence on state budget’s official transfers, in particular on ‘equalization’ subventions, the ratio of which to the budget’s revenue part not including transfers in 2007 accounted for 7.1 percent, while expected growth of the indicator in 2008 is 10 percent.

      – Average monthly wages level in Jan.-Dec. 2007, 20.4 percent less than the national average, accompanied by dependence of the city’s budget revenue on individual income tax (specific weight of this source of income in the city budget general fund’s revenue not including transfers amounts to some 77.3 percent).

      – High degree of amortization of key assets, including housing stock, transport facilities and civil engineering infrastructure. A necessity for significant capital investment in their recovery.