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       T R O U B L E D   C O M P A N Y   R E P O R T E R

                          E U R O P E

          Wednesday, August 28, 2019, Vol. 20, No. 172

                           Headlines



D E N M A R K

SANTA FE GROUP: Breached Debt Covenants, Creditor Says


G E R M A N Y

HORNBACH BAUMARKT: Moody's Cuts CFR to Ba3; Alters Outlook to Neg.


I R E L A N D

MAN GLG II: Moody's Affirms B2 Rating on EUR7.7MM Class F Notes


U N I T E D   K I N G D O M

ARCADIA GROUP: Two Landlords Drop Opposition to Planned CVA
BURY FC: Manchester City, United Called on to Help Save Club
CARPETRIGHT PLC: Shareholder Acquires Debt, To Provide Funding
NORTHERN POWERHOUSE: Six More Hotels Enter Administration
WB BUTCHERS: Enters Liquidation After 50 Years of Trading



X X X X X X X X

TAJIKISTAN: S&P Affirms 'B-/B' Sovereign Credit Ratings

                           - - - - -


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D E N M A R K
=============

SANTA FE GROUP: Breached Debt Covenants, Creditor Says
------------------------------------------------------
Christian Wienberg at Bloomberg News reports that on Aug. 26, the
last remnant of the East Asiatic Company of Denmark lost more than
40% of its market value after a key creditor said it breached debt
covenants.

The development represents an existential threat to EAC, now called
Santa Fe Group A/S, and has left in tatters what was once an icon
of corporate Denmark, Bloomberg notes.

Gabriella Sahlman, an investment director at Proventus Capital
Partners, told Bloomberg that the creditor thinks "there is a
breach of covenants.  We think it's a very serious situation.  What
happens next depends on what Santa Fe does.  It's too early to
speculate on what might happen."

By the 1980s, the debt-fueled expansion that EAC had allowed itself
was no longer sustainable and it started to sell off bits of its
business.  That process continued into the current century,
Bloomberg discloses.  By 2015, EAC changed its name to Santa Fe and
its focus to relocation services, Bloomberg relays.

According to Bloomberg, the company hasn't yet thrown in the towel.
It says that Proventus's allegation that it breached its debt
covenants would constitute a default.  But Santa Fe "does not
recognize the existence of any breach."




=============
G E R M A N Y
=============

HORNBACH BAUMARKT: Moody's Cuts CFR to Ba3; Alters Outlook to Neg.
------------------------------------------------------------------
Moody's Investors Service downgraded the long-term corporate family
rating of Hornbach Baumarkt AG, the German DIY-store chain, to Ba3
from Ba2. Concurrently Moody's downgraded the company's Probability
of Default Rating to Ba3-PD from Ba2-PD while it affirmed the Ba2
rating on the EUR250 million worth of senior unsecured notes due in
2020. The outlook was changed to negative from stable.

The downgrade to Ba3 reflects Hornbach's higher-than-expected gross
adjusted debt, which will increase Moody's gross adjusted leverage
to around 5.5x in fiscal 2019, substantially higher than the 4.0x
Moody's anticipated. Moody's only expects leverage to strengthen
towards 5.0x in fiscal 2020. Hornbach's absolute EBITDA generation
is forecast by Moody's to improve over the next 12-18 months, but
not sufficiently to offset the higher-than-expected gross debt.
Hornbach continues to face margin pressures, EBIT/interest is weak
at below 2.0x and the company's high capital expenditure continues
to put pressure on free cash flow (FCF) due to the company's growth
strategy.

The main reasons for the higher-than-expected gross adjusted debt,
and increase in leverage to around 5.5x in fiscal 2019 are: (i) the
issuance of EUR295 million worth of promissory notes ("promissory
notes") in fiscal 2018 and Moody's expectation that the company may
need to issue additional debt to finance its growth strategy
despite the fact that the company has said the promissory notes are
to pre-finance the EUR250 million Bond maturing in February 2020;
and (ii) the introduction of IFRS 16, which Moody's expects will to
lead to capitalized operating lease liability of EUR1,193 million,
around EUR362 million higher than Moody's current operating lease
adjustment of EUR831 million.

The Ba2 rating on the Bond is one notch higher than the CFR
reflecting that the promissory notes are not guaranteed by
Hornbach's operating subsidiaries and therefore subordinated to the
Bond.

RATINGS RATIONALE

The downgrade primarily reflects the increase in Hornbach's
reported financial debt to EUR762 million in fiscal 2018 from
EUR424 million in fiscal 2017 to fund ongoing development capex in
new stores, real estate and digitalization projects, which lead to
negative free cash flows in fiscal 2018. Despite the maturity of
the EUR250 million Bond maturing in February 2020, Moody's expects
Hornbach's reported financial debt is likely to remain at a similar
level over the next 12 to 18 months in order that the company can
finance new store openings and other capital expenditure and at the
same time, maintain a cash balance of at least EUR100 million. The
increase in financial debt is to some extent compensated by the
company's EUR313 million cash balance as of May 2019 and the
company's good liquidity especially given the company has evidenced
a conservative financial policy to date. Moody's does not expect
Hornbach would use cash to make sizeable acquisitions or increase
dividend payments.

Hornbach's expected increase in leverage is also driven by the
application of IFRS16 accounting standard, which the company
estimates would have increased financial debt by EUR1,193 million
in fiscal 2018. This amount is around EUR362 million higher than
the EUR831 million debt adjustment that Moody's made for the
capitalization of operating leases in fiscal 2018. The main reason
for this difference is that the previous disclosure of undiscounted
future lease payments did not capture certain renewal options of
existing lease contracts, which the company has decided are
"reasonably certain" to be exercised. When IFRS16 becomes effective
in fiscal 2019, Moody's estimates that this will increase
Hornbach's Moody's adjusted debt to EBITDA by around 1.0x to around
5.5x. Moody's considers that the adoption of IFRS16 represents
material new information that the agency didn't have before.

The downgrade also reflects continued margin erosion in part driven
by operating cost increases and partly driven by intense
competition in the German DIY market. Moody's Adjusted EBIT margin
declined to 2.8% from 3.6% in fiscal 2017, which is lower than
historical levels and lower than the 3% Moody's expected. Interest
cover (as measured by Moody's Adjusted EBIT to Interest Expense)
also deteriorated to 1.8x in fiscal 2019 from 2.4x in fiscal 2018.
Moody's expects some recovery in EBITDA over the next 12-18 months
as turnover should continue to grow at mid-single digits. This is
supported by the company's solid Q1 2019 results, where revenues
and EBITDA grew 8.5% and 17% (excluding the impact of IFRS16)
despite more challenging macroeconomic conditions. Hornbach also
expects to improve its cost base such that margins stabilise. The
EBITDA increase is expected to drive leverage reduction towards
5.0x by fiscal 2020.

Hornbach's CFR is also constrained by (1) intense competition in
the do-it-yourself (DIY) industry in Germany and the high level of
digitalisation costs; (2) Hornbach's relatively small size compared
with other European retailers; and (3) high level of capital
spending associated with new store openings, which leads to
negative free cash flow generation.

However the Ba3 CFR is supported by (1) strong position in its
domestic market and good geographical diversification across
Europe; (2) positive underlying growth, as reflected by its ability
to outperform the market; and (3) a good liquidity profile, which
is underpinned by the company's commitment to maintaining a
conservative financial policy.

Hornbach's liquidity profile is good as it benefits from around
EUR313 million cash on the balance sheet as of 31 May 2019 and an
undrawn committed EUR350 million five-year revolving credit
facility maturing in December 2023. The company's liquidity would
be sufficient to refinance the EUR250 million worth of senior
unsecured notes maturing February 2020.

STRUCTURAL CONSIDERATIONS

The Bond's Ba2 rating is one notch above the company's CFR because
they benefit from senior guarantees from Hornbach's operating
subsidiaries. These operating subsidiaries account for almost all
of the company's tangible net assets and EBITDA. The EUR 295
million promissory notes issued in fiscal 2018 are not guaranteed
by Hornbach's operating subsidiaries and are therefore subordinated
to the Bond.

The Ba3-PD probability of default rating, in line with the CFR,
reflects Moody's assumption of a 50% family recovery rate, typical
for secured bond structures with a limited set of financial
covenants. Some of the facilities contain financial covenants
(interest coverage of at least 2.25x and equity ratio of at least
25%), which the company has been able to meet comfortably to date

RATIONALE FOR THE NEGATIVE OUTLOOK

The negative outlook reflects Moody's expectations that the
company's leverage will increase to around 5.5x in fiscal 2019 and
that that the company will need to sustainability grow its revenues
and earnings in the next 12 to 18 months to reduce leverage towards
5.0x, a level which is commensurate with the current Ba3 CFR.

The outlook could be stabilized if in the next 12 to 18 months the
company shows evidence that Moody's adjusted debt/EBITDA will trend
towards 5.0x driven by an ongoing and sustainable increase in
earnings and improvement in the company's FCF and interest cover,
which are currently weak.

WHAT COULD CHANGE THE RATING UP/DOWN

The company is weakly positioned in the Ba3 rating category and as
such, an upgrade is unlikely in the short term. Upward pressure on
the ratings in the medium term could be exerted as a result of
Hornbach's financial leverage decreasing below 4.5x on a sustained
basis. A higher rating would also require the company to strengthen
its Moody's adjusted EBIT margin above 4% on a sustained basis and
the generation of positive FCF.

Conversely, downward pressure could be exerted on the ratings as a
result of Hornbach's financial leverage failing to trend towards
5.0x supported by growing underlying revenues and profits. Downward
pressure could also be exerted if interest cover decreases below
1.5x, if FCF remains negative and if the company's liquidity
deteriorates.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Retail Industry
published in May 2018.

CORPORATE PROFILE

Hornbach Baumarkt AG is a mid-sized DIY retailer mainly operating
in Germany, with 97 stores as of the end of fiscal 2018, and other
European countries, including Austria (14), the Netherlands (14),
the Czech Republic (10), Switzerland (7), Romania (6) Sweden (6),
Slovakia (3) and Luxembourg (1). The company reported sales of
€4.1 billion as of the end of fiscal 2018.

Hornbach's shares are listed on the Frankfurt Stock Exchange.
Hornbach's parent company, Hornbach Holding AG & Co. KGaA, owns
76.4% of Hornbach's share capital, while independent investors own
23.6%. In turn, the Hornbach family owns 37.5% of Hornbach
Holding's total share capital, and the remaining 62.5% are free
float.



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I R E L A N D
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MAN GLG II: Moody's Affirms B2 Rating on EUR7.7MM Class F Notes
---------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to refinancing notes issued by MAN GLG
EURO CLO II D.A.C.:

EUR207,000,000 Class A-1 Senior Secured Floating Rate Notes due
2030, Assigned Aaa (sf)

EUR17,700,000 Class C Deferrable Mezzanine Floating Rate Notes due
2030, Assigned A2 (sf)

At the same time, Moody's affirmed the outstanding notes which have
not been refinanced:

EUR10,000,000 Class A-2 Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Dec 14, 2016 Definitive Rating
Assigned Aaa (sf)

EUR43,900,000 Class B Senior Secured Floating Rate Notes due 2030,
Affirmed Aa2 (sf); previously on Dec 14, 2016 Definitive Rating
Assigned Aa2 (sf)

EUR17,300,000 Class D Deferrable Mezzanine Floating Rate Notes due
2030, Affirmed Baa2 (sf); previously on Dec 14, 2016 Definitive
Rating Assigned Baa2 (sf)

EUR19,200,000 Class E Deferrable Junior Floating Rate Notes due
2030, Affirmed Ba2 (sf); previously on Dec 14, 2016 Definitive
Rating Assigned Ba2 (sf)

EUR7,700,000 Class F Deferrable Junior Floating Rate Notes due
2030, Affirmed B2 (sf); previously on Dec 14, 2016 Definitive
Rating Assigned B2 (sf)

RATINGS RATIONALE

The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in its methodology.

The Issuer issued the refinancing notes in connection with the
refinancing of the following classes of notes: Class A-1 Notes and
Class C Notes due 2030, previously issued on December 12, 2016. On
the refinancing date, the Issuer has used the proceeds from the
issuance of the refinancing notes to redeem in full the Original
Notes.

On the Original Closing Date, the Issuer also issued EUR41,200,000
of subordinated notes, which will remain outstanding.

As part of this refinancing, the Issuer has extended the weighted
average life by 12 months to now 6.32 years. In addition, the
Issuer has amended the base matrix that Moody's has taken into
account for the assignment of the definitive ratings.

The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of secured senior loans or senior secured
bonds and up to 10% of the portfolio may consist of unsecured
senior loans, second-lien loans, high yield bonds and mezzanine
loans. The underlying portfolio had been fully ramped previously;
as of the closing date the portfolio par amount of EUR349,935,081
is lower than the transaction's target par amount given the
previous default of two obligations from the same obligor in the
portfolio.

GLG Partners LP will manage the CLO. It will direct the selection,
acquisition and disposition of collateral on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's 17-months remaining reinvestment
period. Thereafter, subject to certain restrictions, purchases are
permitted using principal proceeds from unscheduled principal
payments and proceeds from sales of credit risk obligations and
credit improved obligations.

The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.

Methodology Underlying the Rating Action:

The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.

Factors that would lead to an upgrade or downgrade of the ratings:

The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.

Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in March 2019.

Moody's used the following base-case modeling assumptions:

Portfolio Par Amount: EUR349,935,081 determined by considering
defaulted par of EUR3,350,000 as of August 8, 2019 and EUR1,205,568
principal proceeds.

Diversity Score: 48

Weighted Average Rating Factor (WARF): 3034

Weighted Average Spread (WAS): 3.90%

Weighted Average Coupon (WAC): 4.70%

Weighted Average Recovery Rate (WARR): 44.0%

Weighted Average Life (WAL): 6.32 years

Moody's has addressed the potential exposure to obligors domiciled
in countries with local currency ceiling (LCC) of A1 or below. As
per the portfolio constraints and eligibility criteria, exposures
to countries with LCC of A1 or below cannot exceed 10%, with
exposures to LCC of Baa1 to Baa3 further limited to 5% and obligors
cannot be domiciled in countries with LCC below Baa3.



===========================
U N I T E D   K I N G D O M
===========================

ARCADIA GROUP: Two Landlords Drop Opposition to Planned CVA
-----------------------------------------------------------
Kate Holton at Reuters reports that Philip Green's Arcadia Group
said on Aug. 27 it could now push ahead with its restructuring plan
after two U.S. landlords dropped their opposition to the planned
Company Voluntary Arrangement (CVA).

Mr. Green's fashion empire had said in July that it received
applications from legal entities of U.S.-based property group
Vornado (VNO.N) challenging two of its seven planned CVAs, Reuters
recounts.  Media reports said landlord Caruso had also objected,
Reuters notes.

"With these legal challenges now withdrawn all the components of
the CVAs can now be implemented," Reuters quotes Chief Executive
Ian Grabiner as saying.  "We can now look forward to implementing
our strategy and delivering our growth plan for the group."

                       About Arcadia Group

Arcadia Group Ltd. is the UK's largest privately owned fashion
retailer with seven major high street brands: Burton, Dorothy
Perkins, Evans, Miss Selfridge, Topshop, Topman and Wallis, along
with its out-of-town fashion destination Outfit.  

In June 2019, Arcadia's creditors approved a Company Voluntary
Arrangement (CVA).  The company's landlords agreed to rent cuts,
23
store closures and 520 job losses.
  




BURY FC: Manchester City, United Called on to Help Save Club
------------------------------------------------------------
Inside World Football reports that leading figures from Britain's
centrist Liberal Democrat party have called on regional giants
Manchester City and Manchester United to chip in to a fund to help
save Bury, the third-tier club whose existence appears in serious
jeopardy in wake of passage of a Company Voluntary Arrangement last
month.

The politicians are urging establishment of a "Greater Manchester
Football Fighting Fund" with contributions from "each of the
region's professional clubs", Inside World Football relates.

While the proposal envisages that other struggling regional clubs
would in theory be able to access the fund, no indication is given
either of its desired size or the scale of the contributions that
would be asked for, Inside World Football notes.

In their statement, Lib Dem MEPs Jane Brophy and Chris Davies, and
Councillor Andy Kelly, as cited by Inside World Football, said they
were calling for "radical action".

According to Inside World Football, they added: "The lack of
financial support Bury FC has received from the football community
demonstrates that now is the time for political parties to step
forward and find a solution to their problems.  Lib Dems are
therefore calling for the immediate creation of a means-tested
'Greater Manchester Football Fighting Fund', which each of the
region's professional clubs will contribute towards.  This will
help preserve the historic footballing institutions that our city
has become so famous for and ensure staff can rest assured that
their jobs are no longer hanging in limbo."

The politicians also called on owner Steve Dale to sell the club
"at the earliest possible opportunity".

Bury, founded in 1885, have so far not fulfilled a single League
One fixture this season and have been docked twelve points.


CARPETRIGHT PLC: Shareholder Acquires Debt, To Provide Funding
--------------------------------------------------------------
Simon Neville at Independent.ie reports that Carpetright's biggest
shareholder has bought the retailer's debts and vowed to engage
with the business to provide longer-term, stable funding.

According to Independent.ie, Meditor will now control Carpetright's
revolving credit facility of GBP40.7 million, instead of previous
lenders NatWest and AIB, although a day-to-day overdraft of GBP6.5
million with NatWest and Ulster Bank will remain.

Carpetright has been struggling with a huge debt pile for several
years and was forced to turn to Meditor for two short-term loans
last year, Independent.ie relates.

But on Aug. 27, the high street flooring specialist said debts have
been falling following the sale of two properties in Amsterdam,
Independent.ie notes.

Last year, had been particularly hard for Carpetright, with a
company voluntary agreement (CVA) insolvency process leading to
creditors taking a hefty cut to their debts, Independent.ie
recounts.

It also led to 80 stores closing and would see Carpetright pave the
way for several retailers to use CVAs, Independent.ie relays.

Earlier this year, the company revealed sales had taken a
significant dent--down 13.4% to GBP386.4 million--with customers
staying away over fears that the chain could collapse,
Independent.ie discloses.


NORTHERN POWERHOUSE: Six More Hotels Enter Administration
---------------------------------------------------------
Owen Hughes at Business Live reports that six more hotels owned by
Gavin Woodhouse's company Northern Powerhouse Developments have
gone into administration with Duff & Phelps.

According to Business Live, all of the operating hotels continue to
trade in administration and all bookings will be honored.  

The NPD hotels where Duff & Phelphs have been appointed as
administrators are:

   -- Pennine Manor Hotel Limited, Huddersfield  
   -- Atlantic Bay Hotel (Woolacombe) Ltd
   -- The Old Golf House Hotel Management Ltd, Huddersfield    
   -- LBHS Management Ltd (Llandudno Bay Hotel)
   -- Fishguard Bay Hotel Limited
   -- Queens Hotel (Llandudno) Management Ltd

The latest administrations come after a probe was started into the
finances of NPD after insolvency practitioners Duff & Phelps were
appointed interim managers by the High Court, Business Live notes.

The Serious Fraud Office is also considering whether to investigate
Gavin Woodhouse's hotel and care home businesses, Business Live
states.



WB BUTCHERS: Enters Liquidation After 50 Years of Trading
---------------------------------------------------------
Hannah Baker at BusinessLive reports that WB Butchers, a Bristol
butcher, is being voluntarily wound up by a liquidation company
after nearly 50 years.

The company appointed business rescue and recovery specialists
Leonard Curtis as liquidators on Aug. 23, BusinessLive discloses.

Steve Markey -- steve.markey@leonardcurtis.co.uk --
and Stuart Robb -- stuart.robb@leonardcurtis.co.uk --
of Leonard Curtis have been appointed to oversee the insolvency
process, which was announced on public records site The Gazette,
BusinessLive relates.

According to BusinessLive, a statement on The Gazette website
reads: "Notice is hereby given that the following resolutions were
passed on August 12, 2019, as a special resolution and an ordinary
resolution respectively.

"That the Company be and is hereby wound up voluntarily and that
Steve Markey and Stuart Robb, both of Leonard Curtis, Leonard
Curtis House, Elms Square, Bury New Road, Whitefield, Manchester,
M45 7TA be and are hereby appointed as Joint Liquidators of the
Company for the purposes of the winding up of the Company and the
Liquidators are authorized to act jointly and severally."

The business, which was incorporated in 1972, according to
Companies House, is described as a retailer of meat and meat
products in specialized stores.




===============
X X X X X X X X
===============

TAJIKISTAN: S&P Affirms 'B-/B' Sovereign Credit Ratings
-------------------------------------------------------
On Aug. 23, 2019, S&P Global Ratings affirmed its 'B-/B' long- and
short-term foreign and local currency sovereign credit ratings on
Tajikistan. The outlook remains stable.

S&P also affirmed the 'B-' long-term issue rating on Tajikistan's
senior unsecured debt.

Outlook

S&P said, "The outlook is stable because we expect that Tajikistan
will maintain strong economic growth and low government
debt-service costs over the next 12 months, owing to the still-high
component of concessional borrowing in the government's debt stock,
which helps offset risks from weak fiscal, external, and monetary
performance.

"We could take a negative rating action if strain on Tajikistan's
government debt-servicing capacity were materially to increase, for
example as a result of widening fiscal deficits, or the government
taking on substantial amounts of commercial debt to fund
infrastructure projects. Downward pressure on the rating may also
build if current account imbalances widened significantly and the
net external debt position deteriorated sharply, given the low
level of foreign exchange reserves, excluding monetary-gold.

"Conversely, we could consider an upgrade if strong economic growth
resulted in materially higher GDP per capita than we currently
anticipate. Narrower fiscal imbalances and improved effectiveness
of monetary policy, for example, due to a significant reduction of
financial dollarization and a material strengthening of the banking
system, could also lead us to take a positive rating action."

Rationale

S&P said, "The ratings on Tajikistan reflect institutional
weaknesses that could weigh on policy predictability, and per
capita GDP estimated at $850 in 2019 that is among the lowest of
all the sovereigns we rate. Low levels of wealth, however, are
partially offset by by our opinion of the economy's strong growth
prospects, relative to peers with a similar level of economic
development, underpinned by continued recovery in private
consumption and still strong public investment. The ratings are
constrained by Tajikistan's weak external position, with a large
trade deficit, high reliance on workers' remittances, and a narrow
export base (primarily cotton, processed alumina, minerals, and
electricity). Despite the relatively moderate level of general
government debt, public finances are still weak, with high
contingent liability risks stemming from financially weak
state-owned enterprises (SOEs). We estimate outstanding debt of
SOEs at about 20% of GDP.

"Our assumptions about the financing of the Rogun Dam hydropower
project (HPP) have a significant effect on our forecasts. We
understand that the total cost of the project will be about $4
billion, to be payable over 2017-2027, about 5% of GDP on average
each year. The government's $500 million Eurobond issuance in 2017
was largely to fund the first turbine launched in November 2018 and
to partly fund the second turbine, which we expect to launch in
September 2019. Over 2020-2022, we estimate project financing needs
will remain high at about $1.5 billion. It is currently unclear how
the government will fully meet these financing needs. At this time,
we do not assume the government will issue additional external debt
to finance the project. In our view, a shortfall in funding could
result in potential delays."

Institutional and Economic Profile: Relative political stability
and strong GDP growth amid still-low economic wealth levels

-- Political stability has endured under the long-serving
president.

-- Decision-making remains highly centralized, which reduces
policymaking predictability, in S&P's view.

-- S&P expects economic growth rates to be stronger than peers',
yet insufficient to materially raise GDP per capita.

Tajikistan has been politically stable since the late 1990s, when
it ended a long civil war and recovered from a substantial economic
decline following the collapse of the Soviet Union. S&P said, "We
see this stability as centered on President Emomali Rahmon, who has
ultimate decision-making power and is currently serving his fourth
consecutive term. Decision-making remains highly centralized, which
can reduce policymaking predictability, in our view. The
president's administration controls strategic decisions and sets
the policy agenda. Given the centralized nature of Tajikistan's
political power, we view accountability and checks and balances as
weak. We do not currently see immediate risks to domestic political
stability that would undermine policy predictability. Relations
with Russia are constructive; financial links with China are
increasing; and economic relations with Uzbekistan are improving."

S&P said, "We forecast Tajikistan's GDP per capita will remain low,
at $875 on average, in 2019-2022 owing to high population growth
and the depreciation of the Tajikistan somoni (TJS). In our view,
there could be some inconsistencies with regard to national
accounts data, with the actual growth rate being lower than that
reported for some years.

"Following strong economic expansion of 7.3% in 2018, we expect
economic expansion will slow to 6.3% in 2019 and stabilize at about
6.0% in 2020-2022. This implies growth higher than that of peers
with a similar level of economic development. In our view, spending
on public projects will taper off from the peak in 2018.
Consequently, the contribution of public investments to overall
economic growth will reduce over the forecast period. The steady
inflow of remittances from Russia, on the other hand, will continue
to support economic activity by stimulating private consumption. On
the supply side, we expect the industrial sector to expand on
account of new capacity in the food processing, mining and
metallurgy, and energy sectors." The construction sector will
continue to spur growth, despite reduced public investment.

Flexibility and Performance Profile: Twin deficits will narrow
modestly due to lower fiscal spending

-- S&P expects the twin fiscal and external deficits to narrow in
its forecast horizon through 2022, largely because of lower fiscal
spending on imports of capital goods related to public
infrastructure projects.

-- Despite the still-moderate level of general government debt,
the high indebtedness of loss-making SOEs, in particular in the
energy sector, poses contingent risks to the government.

-- Still high financial dollarization and credit risks in the
banking system remain constraints on monetary policy effectiveness
and credibility.

Tajikistan's external sector performance deteriorated markedly in
2018. The current account deficit (CAD) widened to about 5.0% of
GDP from a surplus of 2.2% in 2017, due to intensified imports of
capital goods needed for infrastructure projects, including Rogun
HPP. S&P said, "We project the CAD will decline to 3.7% of GDP in
2019 and stabilize around 2.7% of GDP in 2020-2022. This reflects
our view that the growth of imports of capital goods will taper off
on the back of lower fiscal spending, including for the Rogun
project; import-driven private consumption will remain steady; and
exports of key commodity products and services, including cotton,
aluminum, and minerals, will expand moderately." An increase in
electricity exports to neighboring countries should support lower
external imbalances in 2019.

Foreign direct investment (FDI) remains the primary source of
financing for the CAD. In 2019-2022, net FDI will average about 2%
of GDP given ongoing Chinese investment in a broad array of
sectors, including raw materials, aluminum, metallurgy, and retail.
Concessional borrowing will be limited mainly to the financing of
projects in the public investment program. The Rogun project is not
included in this program, however. Although not in our base-case
scenario, the government might consider further commercial
borrowing for the timely construction of the HPP.

Driven by persistent current account imbalances, Tajikistan's
narrow net external debt position will gradually deteriorate to 95%
of current account receipts (CARs) by 2022. At the same time, S&P
projects gross external financing needs will exceed 100% of CARs
plus usable reserves over the same period. S&P expects usable
reserves will remain stable at about four months of current account
payments throughout the forecast horizon as they will be regularly
replenished through the purchase of nonmonetary gold from the
domestic market in local currency.

In S&P's view, monetary policy effectiveness remains restricted by
the still-weak domestic banking system, shallow capital markets,
high dollarization, and the National Bank of Tajikistan's (NBT's)
lack of operational independence. Financial dollarization is still
high in the economy, although the foreign currency share of total
deposits and of total credits had declined to 48% and 50%,
respectively, by June 2019 compared with peak levels of 62% and 69%
in 2015.

High credit risks in the banking system still constrain the
effectiveness of monetary transmission channels. Although declining
from peak levels in 2016, nonperforming loans (NPLs) as a
percentage of total loans are still high at 24.8% in the second
quarter of 2019. However, S&P notes that the NBT uses a relatively
conservative reporting standard for NPLs, recording loans overdue
by more than 30 days instead of the more internationally used
90-day measure. NPLs stemmed largely from the unfavorable economic
and financial situation in the region, which in turn decreased the
population's purchasing power and hit private sector income. Banks'
asset quality continues to be weighed down by the two troubled
banks--Tojiksodirotbank (TSB) and Agroinvestbank (AIB)--which the
government recapitalized in 2016. Resolution of these banks has yet
to be finalized. Downside risks to banks' asset quality could stem
from high vulnerabilities of the banking system to local currency
depreciation and high dependence of favorable economic conditions
on remittance inflows.

Nevertheless, monetary policy has recently seen some positive
developments, with the NBT introducing a liquidity forecasting
mechanism and new instruments. These include overnight and intraday
lending facilities, overnight deposits, and credit and certificate
of deposit auctions. Interest rates of these instruments are now
linked to the NBT's short-term refinancing rate, which should help
increase the impact of the refinancing rate on the interbank rates
and improve the monetary transmission mechanism.

S&P said, "We expect inflation will stay under 7% in the forecast
horizon, within the NBT's medium-term inflation target of 7% plus
or minus 2 percentage points. Despite the ongoing hikes in
regulated utility tariffs, the relatively stable exchange rate,
lower oil prices, and cheaper agriculture imports from Uzbekistan
will corral inflationary pressures. We expect the somoni to
depreciate against the U.S. dollar by 5%-6% annually in 2019-2022.
Lower import bills with stable remittance inflows, relative
stability of trading partner currencies, and dovish monetary
policies of advanced economies will support moderate levels of
depreciation. We note that the NBT intends to implement
inflation-targeting and a fully flexible exchange rate by 2023.

"We expect the general government budget deficit will be at 3.1% of
GDP in 2019 and narrow to 2.1% of GDP on average in 2020-2022, due
to financing constraints. We think that fiscal spending on
nonpriority infrastructure projects and associated goods and
services will be reduced. Although construction of the Rogun HPP is
a priority, we assume its funding will be further cut, resulting in
potential delays." According to the Budget Law for 2019, about
TJS2.1 billion (or about $225 million) was allocated from the
government budget for Rogun HPP's construction this year versus
about TJS4 billion (or about $450 million) in 2018.

The 2019 fiscal deficit will be financed mainly by external funding
from concessional sources and the remaining balance of Eurobond
proceeds. S&P expects that about $120 million in Eurobond proceeds
not utilized in 2018 will be fully deployed to complete Rogun HPP's
second turbine. The government expects about $160 million in
concessional loans this year to finance public infrastructure
projects, excluding Rogun HPP. Albeit in a limited amount,
monetization of the government's gold deposits with the issuance of
government securities to the NBT will fill in the financing
shortfall. The country's budget law for 2019 does not envision
another Eurobond issuance. Although not in S&P's base-case
assumptions, the government might raise additional external funding
from commercial market sources to finance the next phases of Rogun
HPP.

S&P said, "We expect moderate currency depreciation (about 80% of
the debt stock is denominated in foreign currency) will result in
higher government debt accumulation than implied by fiscal
deficits. However, with GDP growing at a strong pace, Tajikistan's
general government debt net of liquid assets will remain broadly
stable at about 42% of GDP on average in the forecast horizon. Due
to a high share of concessional loans in the total debt stock, the
cost of debt will remain low, at about 4% of budget revenue.
Downside risks to the debt burden could stem from higher fiscal
spending on infrastructure projects than we currently anticipate
and the possible liquidation of the two troubled banks, TSB and
AIB, full resolution of which awaits a government decision.

"Our assessment of the government's fiscal debt profile includes
contingent liabilities from SOEs. These enterprises account for 30%
of employment and more than 40% of GDP, and are regularly involved
in quasi-fiscal activities. In our view, high debt levels at
loss-making SOEs, in particular in the energy sector, pose
contingent risks to the government. We estimate outstanding debt of
SOEs at about 20% of GDP in 2019." About 80% of SOEs' total debt is
attributed to national power company Barki Tojik, which also
generates over 95% of SOEs' operating losses. The second-largest
debtor is aluminum company TALCO, which contributes about 12%.

In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.

After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.

The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.

The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.

  Ratings List
  Ratings Affirmed
  Tajikistan

  Sovereign Credit Rating         B-/Stable/B
  Transfer & Convertibility Assessment B-
  Senior Unsecured                   B-



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S U B S C R I P T I O N   I N F O R M A T I O N

Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.

Copyright 2019.  All rights reserved.  ISSN 1529-2754.

This material is copyrighted and any commercial use, resale or
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