News Column

Moody's assigns Aa3 to City of Sapporo's domestic bond

June 8, 2014



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

domestic bond issued by City of Sapporo. The rating outlook is stable.

The bond issuance is:

€¢ JPY 10 billion Series 2 senior unsecured bonds due 2019

RATINGS RATIONALE

The Aa3 rating for City of Sapporo 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 Sapporo 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.

Sapporo's rating also reflects its decreasing debt burden and improving

fiscal outcome owing to fiscal reforms.

The City of Sapporo is one of 20 designated cities in Japan and has a

population of 1.9 million. Its local GDP is JPY 6.4 trillion, according

to the most recent statistics.


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Source: EMBIN (Emerging Markets Business Information News)


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