Moody's ups Moscow, St. Petersburg

Moody's Investors Service said it upgraded the foreign currency ratings of both the City of Moscow and the City of St. Petersburg to Baa2 from Baa3, upgraded the local currency rating of Moscow to Baa2 from Baa3 and assigned a Baa2 local currency rating to St. Petersburg.

At the same time, Moody's Interfax Rating Agency said it affirmed both cities' national ratings at Aaa.ru.

The outlook is stable.

Moody's said the upgrades reflect the cities' national importance, their significant presence in the capital markets, improved macroeconomic conditions and reduced risk of systemic shocks throughout the Russian Federation and expected stability in the sub-sovereign institutional framework beyond 2005, in particular due to the two cities' lack of exposure to municipal reforms starting in 2006.

At the same time, however, Moody's cautioned that significant demand for investment in the cities' infrastructure may lead to higher debt going forward. Current debt burden, however, is low: at the end of 2004, debt as a percentage of operating revenue was about 11% for St. Petersburg and 26% for Moscow.

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