TEXT-Fitch revises outlook on Russian Tula Region to positive; drops ratings

Wed Nov 28, 2012 4:59am EST

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(The following statement was released by the rating agency)

Nov 28 - Fitch Ratings has revised the Outlook on Russia's Tula Region 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 'A+(rus)' and Short-term foreign currency rating at 'B'.

Fitch has simultaneously withdrawn all of the region's ratings as the issuer has chosen to stop participating in the rating process. Accordingly, Fitch will no longer provide ratings or analytical coverage for the Tula Region.

The Positive Outlook reflects the region's improved budgetary performance in 2011 and Fitch's expectations of its consolidation in 2012-2014. Based on the region's actual budget execution during January-September 2012 and its updated three-year financial plans, Fitch forecasts Tula's operating margin will stabilise at 8% in 2012-2014.

The data on the region's budget execution for M912 is available on the Federal Treasury of Russia's website. Every month, regions in Russia have to file the execution to the Ministry of Finance of Russian, and generally Fitch considers that Russian regions are tightly controlled by the Russian federation.

The Outlook also factors in the region's improved debt metrics. The region's direct risk decreased to 17% of current revenue in 2011 from 28% of current revenue in 2010. Fitch forecasts the direct risk below 15% of current revenue in 2012-2104. The maturity profile of the debt improved as well as the region substituted most of the short-term bank loans with RUB5bn domestic bond due 2015 issued in September 2012. The bond has an amortising structure, which decreases refinancing risk for the region, which used to be high in the previous years.

The region has a well-diversified local economy. It benefits from proximity to Moscow, the capital of the Russian Federation. During the past five years, the region has had stable economic growth outpacing the national average, but the size of its economy is still below the average. Although its population accounts for about 1.1% of the national total, the region produces only 0.7% of total value added production.

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