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