OREANDA-NEWS. Fitch Ratings has downgraded the Metropolitan Municipality of Istanbul's Long-Term Local Currency IDR to 'BBB-'from 'BBB'. The Outlook is Stable. Istanbul's National Long-Term Rating could be subject to a change following potential recalibration of the National Rating scale. A full list of rating actions is at the end of this commentary.

Under EU credit rating agency (CRA) regulation, the publication of International Public Finance reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations. In this case the deviation was caused by the downgrade of the sovereign's Long-Term Local Currency IDR according to the revision of the Sovereign Rating Criteria dated 18 July 2016. The next scheduled review date for Istanbul is 23 September 2016.

KEY RATING DRIVERS

The downgrade reflects the following key rating drivers and their relative weights:

HIGH

Institutional Framework

Following the downgrade of Turkey's Long-Term Local Currency IDR on 22 July 2016 (see 'Fitch Applies Criteria Changes to Turkey's Ratings' at www. fitchratings. com), Istanbul's Long-Term Local Currency IDR is now equalised with that of the sovereign. Since local and regional governments usually cannot be rated above the sovereign according to Fitch's International Local and Regional Governments Criteria, Istanbul's Long-Term Local Currency IDR needed to be adjusted in line with the sovereign's Long-term Local Currency IDR to 'BBB-'.The national rating of Istanbul could be subject to a subsequent change following potential recalibration of the national rating scale.

The centralised nature of Turkish local governments (municipalities in general) reflected in the close financial linkage between the central government and the municipalities expose them to the country's macro-economic performance and policy. Their ratings are sensitive to any negative rating action on the sovereign's Foreign Currency and Local Currency IDRs.

We previously affirmed Istanbul's IDRs on 1 April 2016. The city's Long-Term IDRs and Short-term IDR are unaffected by today's rating action.

RATING SENSITIVITIES

A downgrade of Turkey's sovereign ratings (BBB-/Stable/F3) would prompt a downgrade of Istanbul's ratings. Material deterioration of the city's debt servicing capacity as a result of persistent financial instability and further depreciation of the Turkish lira or a deterioration of the budget deficit before debt to more than 10% of total revenues (2015: 6.9%) could also prompt a downgrade, although this is not Fitch's base case scenario.

An upgrade of the sovereign ratings could result in a similar action on Istanbul's ratings subject to a reduction of the city's foreign currency exposure to below 35% of its outstanding debt, continued strong budgetary performance and consistent management policies.

The rating actions are as follows:

Long-Term Local Currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable

National Long-Term rating: unaffected at 'AAA(tur)'

Long-Term Foreign Currency IDR: unaffected at 'BBB-'

Short-Term Foreign Currency IDR: unaffected at 'F3'

Outlooks are Stable.