TEXT-Fitch revises Russia's Voronezh Region outlook to positive

Wed Oct 31, 2012 10:39am EDT

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Oct 31 - Fitch Ratings has revised Russia's Voronezh Region's Outlook to
Positive from Stable and affirmed its Long-term foreign and local currency
ratings at 'BB'. The agency has also affirmed the region's National Long-term
rating at 'AA-(rus)' and Short-term foreign currency rating at 'B'.

The revision of the Outlook reflects the expected consolidation of the region's
sound budgetary performance, underpinned by the well-diversified local economy,
moderate direct risk and sound self-financing capacity on capex. The ratings
also factor in the limited flexibility of the region's operating expenditure.

Fitch notes that any further positive rating action is subject to consolidation
of the region's sound operating performance, with margins in line with
expectations, and maintenance of direct risk coverage at about 20%-25% of
current revenue.

Fitch expects consolidation of the region's sound budgetary performance in
2012-2014, with the margin at about 13%-15%. The region's 2011 operating balance
improved to 12.9% of operating revenue, while its deficit before debt variation
stabilised at RUB2bn. However, the region's budget remains rigid as the
proportion of inflexible spending items accounted for 85.5% of operating
expenditure in 2011 (2010: 84.7%)

The agency expects the region to maintain sustainably sound self-financing
capacity on capital outlays in the medium term. The region's improved current
balance covered 52% of annual capex followed by capital revenue (33%) by
end-2011.

Voronezh region's direct risk accounted for 22.1% of current revenue in 2011
(2010: 14.9%). The increase is attributed to contraction of medium-term bank and
budget loans, replacing matured domestic bond. Fitch expects a decrease in
direct risk to about 18% of current revenue in 2012 and further stabilisation at
this level in 2013-2014. The direct risk/current balance ratio is likely to
remain below two years, exceeding the average maturity of the region's debt.

The region's cash position increased to RUB6.2bn in 2011 (2010: RUB3.2bn).
However, Fitch expects outstanding cash to be lower by the year-end, close to
average balances of 2009-2010, or about RUB3.4bn mitigating immediate
refinancing risk.

The Voronezh region is a part of the Central Federal District, which lies in the
southern part of European Russia. Its economy is well diversified across several
sectors and large number of companies. The region contributed 0.9% of the
Russian Federation's GDP in 2010 and accounted for 1.6% of the country's
population.


Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and
'International Local and Regional Governments Rating Criteria outside United
States', dated 17 August 2012, are available on www.fitchratings.com.

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria - Outside the
United States
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