Fitch grants Turkey’s İzmir top investment grade

İZMİR

Fitch ratings agency has increased its national long-term rating on İzmir, the third largest province in Turkey on the Aegean coast, to its top grading “AAA” from the current “AA+” with a stable outlook. 

So far, the industrialized tourism destination achieved the top “investable” rating from two top agencies, Fitch and Moody’s. 

“The affirmation is driven by İzmir’s “sustainable strong operating performance, with operating margins above 50 percent in 2016 and the city’s prudent management as well as its resilient local economy supporting the local tax base,” a statement by the agency read on May 26. 

“The affirmation also takes into account the municipality’s core responsibilities and corresponding operating spending and high capital expenditure needs,” it said. 

The upgrade of the national rating is based on the fact that “the city has continued to record strong operating margins while accelerating capex projects prior to upcoming elections and fulfilling its additional responsibilities following the enlargement of the metropolitan area while maintaining healthy liquidity levels,” it also said. 

The agency also affirmed İzmir’s long-term foreign-currency issuer default rating (IDR) at “BB+” and long-term local-currency IDR at “BBB-.” The outlooks on the IDRs are stable. 

Any negative rating action on Turkey would be mirrored on İzmir’s IDRs, the agency warned. “A sharp increase in İzmir’s direct debt to current balance above two years, driven by capex and local currency devaluation could also lead to a downgrade.”

“In line with our expectations, İzmir’s well-diversified local economy remained resilient to adverse shocks. Combined with controlled operating expenditure, it achieved an operating margin of a high 52.7 percent at end-2016, despite the nation’s depressed real GDP growth in 2016 compared with the five-year average. According to Fitch’s baseline scenario, İzmir’s operating margin should remain above 50 percent in 2017-2019, supporting the ratings,” it added.   

With a population of 4.22 million in 2016, İzmir is Turkey’s third-largest municipality in terms of population. Its wealth indicators are above the national average and its local gross domestic product of 127.4 billion Turkish Liras in 2014 accounts for 6.2 percent of national GDP, making İzmir the nation’s third-largest GDP contributor, the agency noted.

The city is an important transport and industrial hub and accounts for 6 percent of the country’s export, it said. 

Fitch said the city’s dynamic socio-economic profile and high standard of living exposes it to a high number of less qualified job seekers as well as migrant flows, resulting in the unemployment rate - 14 percent in 2016 - being persistently above the national average - 11.1 percent.