News Column

Moody's assigns Aa3 to Fukuoka Prefecture's domestic bond

June 10, 2014



Moody's Japan K.K. has assigned a Aa3 rating to a

domestic bond issued by Fukuoka Prefecture. The rating outlook is stable.

The bond issuance is:

€¢ JPY 20 billion Series 1 senior unsecured bonds due 2024

RATINGS RATIONALE

The Aa3 rating for Fukuoka Prefecture reflects Moody's view that, given

the close linkage between the government of Japan (Aa3,stable) and the

regional and local governments (RLG) in Japan, their ratings should be

the same.

A key component of Fukuoka and other RLGs' ratings is the extremely high

likelihood that in the event of a liquidity crisis the Japanese government

would step in to provide immediate assistance. The country's highly

centralized system of local government as well as Japan's unique history

of risk socialization provide clear evidence that this support would be

forthcoming.

The considerable level of oversight and supervision of the RLGs exercised

by the central government ensures that any credit issues at the RLG level

are uncovered and addressed early, bolstering the probability of

extraordinary support. The well-developed equalization system of

transfers or Local Allocation Tax (LAT) system assures that no individual

entity's revenues would fall to a level that would require emergency

assistance€”this feature is a clear indication of the government's strong

policy stance towards preventing any RLG default.

Fukuoka's ratings also reflect a positive gross operating balance, which

will help fund a portion of its capital investment and ease annual

borrowing requirements. Fiscal reform initiatives have been the impetus

for this positive scenario. Fukuoka's investment management policy is

conservative and its local economy is important as an economic centre in

Kyushu.

Fukuoka Prefecture is one of 47 prefectures in Japan, and is located in

Kyushu. It has a population of 5 million and GDP of JPY 18 trillion,

according to the most recent statistics.


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Source: EMBIN (Emerging Markets Business Information News)


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