Fitch Revises Krasnoyarsk Region's Outlook to Stable; Affirms at 'BB+'

Tue Dec 10, 2013 11:42am EST

Link to Fitch Ratings' Report: Krasnoyarsk Region - Rating Action ReportMOSCOW, December 10 (Fitch) Fitch Ratings has revised the Russian Krasnoyarsk Region's Outlooks to Stable from Positive 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 its Short-term foreign currency rating at 'B'. Krasnoyarsk Region's outstanding senior unsecured domestic bonds (ISIN RU000A0JRYP7, RU000A0JT8G7 and RU000A0JU5U1) of RUB33.3bn have also been affirmed at 'BB+' and 'AA(rus)'. KEY RATING DRIVERS The revision of Outlook reflects the following rating drivers and their relative weights: High: Fitch has revised down its forecast on Krasnoyarsk region's budgetary performance, which is likely to remain negatively affected by changes in the fiscal regime enacted in 2012. The agency expects the region's 2013 operating balance to be 8%-9% of operating revenue (11%-12% expected in 1H13) before slowly recovering in 2014-2015 to 10%-12%. The operating margin decreased to 7% of operating revenue in 2012 (2011: 16.6%), while its deficit before debt variation widened to 16.6% of total revenue in 2012 (2011: 2.5%). Fitch expects continued growth in the region's direct risk, up to about 30% of current revenue by end-2013, and close to 35% in 2014-2015. Krasnoyarsk region issued a five-year domestic bond in October 2013 and contracted bank loans to finance its budget deficit; its direct risk increased to RUB42.6bn as of 1 November 2013 (2012: RUB27.4bn). Fitch also expects the region to continue to see its cash position being gradually depleted during 2013-2015. Its interim cash reserves fell to RUB13.8bn as of 1 November 2013 from RUB17.6bn in 2012 and RUB27.6bn in 2011. The region terminated its cash deposits in commercial banks in 1H13. Medium: The region's administration expects the region's economy to expand 2%-3% in 2013-2015. Economic growth in the region is underpinned by the natural resources and non-ferrous metallurgy sectors. The region's strong industrial profile supports above-national average wealth metrics. Taxation represented 85.9% of Krasnoyarsk region's operating revenue in 2012 (2011: 85.5%). The region's tax base remains concentrated as the 10 largest taxpayers accounted for 48% of proceeds in 2012 (2011: 56%). The local economy is likely to remain exposed to fiscal changes and/or volatile business cycles in the primary sectors in the medium term. Krasnoyarsk region's ratings also reflect the following rating drivers: Krasnoyarsk region funded sizeable capital outlays in 2012 amounting to 27% of total spending. The region's self-financing capacity decreased in 2012 with current balance and capital revenue covering only 48.6% of capex (2011: 91.1%). Fitch expects the region to maintain capex at about 20%-25% of total spending in the medium term. RATING SENSITIVITIES Consistently sound budgetary performance with an operating margin above 10% leading to direct risk at below 30% of current revenue on a sustained basis would be positive for the ratings. Continued increase in debt to above 50% of current revenue, accompanied by a weaker operating margin below 5% in the medium term, would lead to downward pressure on the ratings. KEY ASSUMPTIONS Russia has an evolving institutional framework with inter-governmental relations between federal, regional and local governments still under development. However, Fitch expects Krasnoyarsk Region will continue to receive a steady flow of earmarked transfers from the federation. The region will continue to have fair access to domestic financial markets to enable it to refinance maturing debt. Krasnoyarsk Region will continue to benefit from the revenue inflow underpinned by a strong industrial base and natural resource endowment. The local economy will continue to demonstrate modest economic growth. Contact: Primary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Vladimir Redkin Director +7 495 956 7064 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 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 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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