OREANDA-NEWS  On 10 November Credit-Rating, a nationally recognized credit rating agency in Ukraine announced that it assigned a long-term credit rating of uaBB+ (uaBB plus) to the city of Sevastopol (`city`). To assign the rating Credit-Rating considered city`s social-economic and financial indicators for 2004-2007 and 1H2008 as well as other inside information furnished by the city council.

An obligor or a debt liability with uaBB credit rating is characterized with the LOWER THAN SUFFICIENT creditworthiness as compared to other Ukrainian obligors or debt liabilities. This level of creditworthiness is strongly affected by adverse changes in commercial, financial and economic conditions. A plus "+" and a minus "-" signs indicate intermediary categories compared to the standard categories (grades).

Factors maintaining the credit rating

High growth rates of revenues to the city budget`s general fund exclusive of transfers recorded over the past 3 years, specifically the their amount in 2005 was in excess of 27.1%, in 2006 of 35.4% and in 2007 of 43.4% of the indicators recorded in the previous budget periods.

City`s favourable geographic position, underpinned by its port facilities, railway junction, and airport, which contributes to city`s efficient development to a large international commercial and tourist hub of southern Ukraine.

Growth in city`s key development indicators over 2003-2007 and 1H2008, specifically in the volume of retail turnover, fixed-capital investments, and industrial production sales.

The city`s key development indicators have improved over 2004-2007 and 1H2008, specifically the average number of employees (exclusive of small businesses) rose by 4% to 78.8K, the monthly average wage advanced 3.3x to UAH1,626 and the wage arrears shrank 9.7x to UAH0.5m.

Factors constraining the credit rating

Discordance between Sevastopol City State Administration and Sevastopol City Council prompted by legislative opacity of the city`s status (the Law of Ukraine "On the Status of the City-Hero of Sevastopol", as it specified by the Constitution has not been adopted hitherto).

Retained city budget`s dependency upon equalization grants from the State Budget, with the ratio of the grants` amount to the revenues of the city budget`s general fund exclusive of transfers was at 18.4% in 1H2008.

The territorial community does not have sufficient land resources, which could be sold in order to raises funds to the city`s development budget - this is associated with effective restrictions in disposal of city`s land resources.

The monthly average wage recorded in 1H2008 is 4.7% lower than the country`s average, coupled with retained dependency of the city budget revenues upon gains from the natural persons` tax (the specific gravity of this source in revenues of the city budget`s general fund exclusive of transfers is around 70%) accompanied by expected decline in rates of wage growth in middle term.

High deterioration of city`s infrastructure and housing sector, which requires significant investments for their renovation.

The level of majority of the city`s economic indicators recorded in 1H2008 (calculated per capita) is lower than those country`s averages, specifically the volume of industrial production sales is 3.3x lower, the foreign direct investments is 1.8x lower, export goods turnover is 4.3x lower and the fixed-capital investments is lower by 29.6%.