Fitch Rates Russia's Khanty-Mansyisk Region 'BBB'; Outlook Stable

Fri Oct 4, 2013 11:40am EDT

Link to Fitch Ratings' Report: Khanty-Mansyisk Region - Rating Action ReportLONDON/MOSCOW, October 04 (Fitch) Fitch Ratings has assigned Russia's Khanty-Mansyisk Autonomous Region (KMAR) Long-term foreign and local currency ratings of 'BBB', a Short-term foreign currency rating of 'F3', and a National Long-term rating of 'AAA(rus)'. The Outlooks on the Long-term ratings are Stable. The rating action also affects KMAR's outstanding senior unsecured domestic bonds of RUB2bn (ISIN RU000A0JQP51). KEY RATING DRIVERS KMAR's ratings are aligned with those of Russian Federation (BBB/Stable), reflecting the region's intrinsic strength. The ratings reflect KMAR's robust economy, its satisfactory budgetary performance, its low debt and a net cash positive status. The ratings also factor in the concentration of the region's tax base in the oil and gas sector. The key rating drivers and their relative weights are as follows: High: The region's administration expects KMAR's economy to grow about 4%-5% yoy in 2013-2015. This growth is buoyed by steady output in the region's oil and gas sector. Its strong resource-fuelled economy enables its per capita wealth indicators to significantly exceed the national average among Russia's regions. Taxes composed 94.6% of KMAR's operating revenue in 2012 (2011: 94.3%). The region's top 10 taxpayers are all Russia's major oil and gas companies, which contributed 52.1% of total taxes in 2012 (2011: 51.5%). In Fitch's view the region's economy will remain exposed to potential fiscal changes or volatile business cycles in the oil and gas sector in the medium term. Fitch expects KMAR's direct risk to remain negligible, close to 3% of current revenue in 2013 and about 4%-6% in 2014-2015. Such a debt burden is considered low by Fitch as its direct risk payback ratio is likely to remain favourable, at less than a year of the current balance in 2013-2015. KMAR is net cash positive, with accumulated cash reserves averaging RUB17bn in 2008-2012. The region's cash reserves increased to RUB24.6bn at end-2012 (2011: RUB22.9bn). The region deposits some of its cash in commercial banks selected on open tenders. Interest revenue earned by the region on deposits in 2012 amounted to RUB1.4bn (2011: RUB0.8bn). Medium: Fitch expects stabilisation of the region's budgetary performance with an operating margin at about 5%-6% in 2013-2015, underpinned by steady output in the oil and gas sector. The region is likely to post a minor deficit before debt variation at about 1%-3% of total revenue in 2013-2015, as slow growth of tax revenue is countered by stable growth of opex. Fitch expects KMAR's capital outlays to stabilise at about 13% of total spending in the medium term, as its significant capex programme has already funded by the region in past periods. The region's self-financing capacity should remain satisfactory with the current balance and capital revenue covering up to 60% of total capital outlays in 2013 and close to 80% in 2014-2015. RATING SENSITIVITIES The ratings could be positively affected by a sovereign upgrade accompanied by a budgetary performance and debt and debt coverage ratios being within Fitch's base case scenario. A downgrade is unlikely unless the sovereign is downgraded. However, a downgrade could result, in the absence of a sovereign downgrade, from significant deterioration in budgetary performance materially below the agency's expectations leading to weaker debt ratios. Contact: Primary Analyst Konstantin Anglichanov Director +7 495 956 9994 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Behruz Ismailov Associate Director +7 495 956 9980 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and 'International Local and Regional Governments Rating Criteria outside United States', dated 9 April 2013, are available on www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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