TEXT-S&P summary: Dnipropetrovsk (City of)

(The following statement was released by the rating agency)

Oct 03 - =============================================================================== Summary analysis -- Dnipropetrovsk (City of) ---------------------- 03-Oct-2012 =============================================================================== CREDIT RATING: B/Stable/-- Country: Ukraine Primary SIC: Legislative bodies =============================================================================== Credit Rating History: Local currency Foreign currency 28-Sep-2011 B/-- B/-- 16-Mar-2010 B-/-- B-/-- 25-Feb-2009 CCC+/-- CCC+/-- 24-Oct-2008 B/-- B/-- =============================================================================== Rationale

The ratings on Dnipropetrovsk reflect Ukraine's very weak public finance system, which results in low financial flexibility and predictability for the city, as well as material contingent liabilities related to municipal utilities and a poor and concentrated economy. These constraints are mitigated by Dnipropetrovsk's low debt burden and strong financial support from the central government.

The central government's control over the lion's share of Dnipropetrovsk's revenues and expenditures, and what we consider as Ukraine's "volatile and underfunded" system of public finance, significantly reduce Dnipropetrovsk's financial predictability and flexibility.

Material overdue payables of the city's municipal enterprises continue to present one of the key rating constrains. Dnipropetrovsk's municipal heating, water, and transport companies account for most of the accumulated payables, the amount of which has not decreased over the last few years. By year-end 2011, they totaled slightly more than 30% of the city's total budget revenues. The city is not directly responsible for the obligations of these companies. The central government regulates municipal tariffs, which continue to be artificially low. Nevertheless, in the event of financial stress, moral obligations might lead the city to provide help by increasing subsidies or capital.