Fitch Affirms Astrakhan Region at 'B+'; Outlook Stable

Thu Dec 12, 2013 11:50am EST

MOSCOW, December 12 (Fitch) Fitch Ratings has affirmed Astrakhan Region's Long-term foreign and local currency ratings at 'B+', its National Long-term rating at 'A(rus)' and its Short-term foreign currency rating at 'B'. The Outlooks on the Long-term ratings are Stable. KEY RATING DRIVERS The ratings reflect a high level of debt dominated by short-term bank loans, which impose significant refinancing pressure, and a high concentration of the region's tax base. However, the ratings also factor in the region's stabilising direct risk and its sound budgetary performance supported by a robust local economy. Fitch forecasts that the region's direct risk will remain at below 60% of current revenue in 2013-2015. Direct risk declined to 58% of current revenue in 2012 from a high 68% in 2010. However in absolute terms direct risk increased to RUB15.7bn at end-2012 from RUB12.6bn at end-2010. The debt coverage ratio (direct risk/current balance) remains weak at eight years, significantly above the maturity profile of less than two years, and this is reflected in the ratings of the region. Fitch considers the region's refinancing needs to be significant as its debt structure is dominated by short-term bank loans. Under Fitch's base case the region will not face difficulties in refinancing its loans in 2014. However, it faces the risk of higher debt servicing cost if the financial markets worsen, which would put pressure on the budget. The region has low exposure to contingent risk. Guarantees issued by the region and the debt of public sector enterprises totalled RUB0.3bn at end-2012. This amount represented less than 2% of the region's current revenue. The region has not issued new guarantees since 2010. Fitch forecasts continued economic growth for the region at about 8-10% annually in real terms for 2013-2016. Development of vast offshore Caspian Sea oil resources of about 500 million barrels has boosted the local economy. In 2012 12.7bcm of natural gas and 4.9 million tons of oil were extracted from the region. Extraction of natural resources increased 40.5% in 2012 (2011: 37.5%). Regional GDP increased 9.7% in real terms in 2012. However, the region's per capita GDP in 2011 remained about 20% lower than the national average, although Fitch expects this to improve over the medium term. Fiscal concentration is high as top 10 taxpayers accounted for about 50% of Astrakhan region's total tax revenues. A growing economy helped to lift the region's operating surplus above 10% in 2011-2012 from a low 3% in 2010. Overall deficit (deficit before debt variation/total revenue) shrank to 2% in 2012 from a high 20% in 2009. This was achieved despite the federal government's move to raise public sector salaries, which fuelled growth of operating expenditure. Fitch expects a stable operating surplus at about 10% in 2013-2015. Astrakhan region is located in the south-east part of European Russia on the Caspian shore. The region accounted for 0.4% of national GDP in 2011 and for 0.7% of the population. RATING SENSITIVITIES Sound budgetary performance in line with Fitch expectations and reduction of refinancing risk from a lengthening of the debt maturity profile would lead to an upgrade. Weak operating performance with close to zero operating surpluses coupled with further growth of short-term debt would lead to a downgrade. Contact: Primary Analyst Behruz Ismailov Associate Director +7 495 95699 80 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Konstantin Anglichanov Director +7 495 956 99 94 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 at 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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