President Soyer's Reaction to the Fitch Ratings Report

President Soyer's Reaction to the Fitch Ratings Report
President Soyer's Reaction to the Fitch Ratings Report

Izmir Metropolitan Municipality Mayor Tunç Soyer said that the annual report published by Fitch Ratings confirms the strong and reliable financial structure of the municipality. Soyer emphasized that, contrary to the statements in the report, it is not an acceptable attitude to try to show the municipality on the verge of bankruptcy; “Due to the economic crisis Turkey has fallen into, our foreign currency debt has increased 2,5 times. But Izmir Metropolitan Municipality is standing tall despite everything. We believe that the stable financial and financial structure we have will be established in Turkey as well.”

The annual report on 8 metropolitan municipalities rated by Fitch Ratings, including Izmir Metropolitan Municipality, was published in January. Following the downgrade of the country's credit rating on 3 December 2021, Fitch Ratings evaluated how 8 Metropolitan Municipalities would be affected by the country's economy. The international credit rating agency, which confirmed the "highest national credit rating" at the AAA level given to Izmir Metropolitan Municipality last month, emphasized the dynamic economy, sound budget performance and prudent financial management of Izmir Metropolitan Municipality in its scenario report.

President Soyer: “We have the highest credit rating”

Izmir Metropolitan Municipality Mayor Tunç Soyer reacted to the deliberate distortions and interpretations of these proud statements in the report. Underlining that they have the highest credit rating that can be obtained at the national level, AAA from Fitch Ratings, and that they continue to maintain this rating, Soyer said, “As it is emphasized in the report, metropolitan municipalities in Turkey cannot borrow cheap and long-term from local markets for their high-cost large projects. . Unfortunately, as Izmir Metropolitan Municipality, we have not been able to provide project financing support from Iller Bank until today. That's why we have to realize our borrowings in foreign currency," he said.

We reduced the risk by fixing the interest rate

President Soyer stated that they could not "hedging the euro risk" due to the lack of regulation in the relevant legislation, as mentioned in the Fitch Ratings report, and said, "We reduce our risk to some extent by fixing the interest rate. In addition, thanks to our debt repayment risk accounts, we provide assurance to the institutions we work with for the repayment of debt. We are the only municipality that implements this in Turkey.”

International financing is the only solution for large projects.

Emphasizing that the total debt, which was 2019 million euros at the end of March 790, increased to 2021 million euros by the end of 875, and that there was only a 10,25 percent increase in the debts of the Izmir Metropolitan Municipality in euro, Mayor Soyer said that this is due to investments in metro, ferryboat, tram and İZSU. He stated that it was due to infrastructure projects. Soyer said, “From the day I took office, the euro exchange rate has increased by 2,5 times. This increased the debt burden in Turkish Lira. Our historical projects such as the Buca Metro will undoubtedly increase our debt burden, but considering the grace period and long-term credit structure, we consider it to be manageable when we consider our debt repayment projections and the soundness of our financial structure. As a result, if we want to make large-scale investments to create a livable city, unfortunately, there is no other way than to provide international financing for today.”

Izmir Metropolitan Municipality Mayor Tunç Soyer continued: “As of today, our legal borrowing capacity has not been exceeded. Considering the ratio of our debt to our budget, which is an important financial indicator, we can pay our total debt with our one-year income.”

The solid structure we have will be established in Turkey as well.

Izmir Metropolitan Municipality Mayor Tunç Soyer said, “We are neither responsible for the poor management of the country's economy, nor are our citizens who are struggling with their livelihoods. But unfortunately, all our institutions and people pay the cost of the wrong monetary policies of the government. Despite everything, Izmir Metropolitan Municipality is standing tall. Scientific reports of international organizations also confirm this. We believe that the stable financial and financial structure we have will be established in Turkey as well.”

What statements are in the report?

In the report, which includes the criteria used in the evaluations of 8 metropolitan municipalities rated by Fitch Ratings, it was emphasized that the most important criterion for evaluating the debt sustainability of municipalities is the repayment rate. It is stated in the report that Izmir Metropolitan Municipality has a debt sustainability in the AAA category, thanks to its stronger repayment capacity of well under 5 times and a solid current debt service capacity resulting from stronger operating balances.

Fitch Ratings stated that 82,1 percent of İzmir's total debt is in euro; He stated that the foreign exchange risk is mitigated thanks to the long debt maturity, 7.2-year weighted average maturity and full depreciation profile. In addition, Fitch Ratings underlined that 87,9 percent of the debts of Izmir Metropolitan Municipality are fixed-rate, which reduces the interest rate risk of Izmir.

It was also stated in the report that capital expenditures constituted 54 percent of İzmir's total expenditures and that the majority of these capital expenditures included the construction of metro lines.

In the Fitch Ratings report, it was stated that İzmir is the Metropolitan Municipality that makes a net contribution to Turkey's tax payment system, but its shares are lower than other metropolitan municipalities.

In the report, it was emphasized that there is a strict approval process that must be obtained from the Turkish Treasury in order to make foreign borrowing. It was also stated that all metropolitan municipalities could not be protected from risks in their foreign currency borrowings due to regulatory deficiencies arising from the legislation.

In the report, it is also mentioned that municipalities in Turkey are faced with important risks such as debt and liquidity management, unprotected foreign exchange risk, shorter debt maturity profiles and mostly unprotected variable interest rate debt; It was emphasized that the Metropolitan Municipalities could not provide cost-effective and long-term financing to large public investment projects, and this situation led the Metropolitan Municipalities to benefit from international finance and capital markets.

Stating that Iller Bank is referred to as the credit bank of the municipalities in Turkey and that the project that the municipalities want to finance should be approved by this institution, the rating agency Fitch stated that due to the limited capital of Iller Bank, financing support for capital-intensive projects such as metro line construction is limited.

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