Fitch Affirms Altai Region at 'BB+'; Outlook Stable

Fri Jan 24, 2014 11:40am EST

MOSCOW/MILAN/LONDON, January 24 (Fitch) Fitch Ratings has affirmed Russia's Altai Region's Long-term foreign and local currency IDR at 'BB+', National Long-term rating at 'AA(rus)' and Short-term foreign currency IDR at 'B'. The Outlooks on the Long-term IDR and National rating are Stable. KEY RATING DRIVERS The affirmation of the IDRs and National rating reflects the region's satisfactory budgetary performance, sound liquidity and limited debt. The ratings also take into account the modest size of Altai's economy. The Stable Outlook reflects Fitch's expectation that prudent fiscal policy and conservative debt management practices would lead to continued low debt amid satisfactory operating performance in the medium term. Fitch expects the region to record a satisfactory budgetary performance with an operating margin of 7%-9% in 2013-2015. The region posted a minor surplus before debt variation in 2013 according to the preliminary budget execution report. Altai's budgetary performance in the medium term is likely to be focused on social expenditure while the region’s capex programme may be reduced. Altai remained net cash positive in 2012-2013 as its cash holdings increased to RUB4.1bn by end-2013 (2012: RUB3.6bn). Strong cash management and maintenance of sound average monthly cash throughout 2013 demonstrates the region's ability to absorb temporary shocks brought about by the slowdown of the region’s economy. Fitch expects the region to maintain a prudent fiscal policy and conservative debt management practices in the medium term. Federal budget loans remained the sole debt instruments in 2012-2013 with final maturities in 2016. The region’s direct risk of RUB1.4bn (or less than 3% of current revenue) in 2013 was low by national and international standards. It is likely to modestly increase up to 7%-9% of current revenue in 2014-2015. Altai's contingent liabilities are limited to few outstanding guarantees and the low debt levels of its broad public-sector companies. In Fitch's view, the administration's oversight of its public sector is adequate, thus limiting the region's exposure to contingent risk. The region’s administration expects economic growth of 3% yoy in 2014. GDP growth for 2013 has yet to be published. Growth in 2012 was 1.6%. Investments into fixed assets and non-cyclical sectors such as agriculture and trade stimulated the region’s economic growth. RATING SENSITIVITIES The ratings may be positively affected by improved budgetary performance with the operating margin rebounding towards 15% in the medium term alongside moderate debt and favourable debt coverage ratios. A downgrade could result from significant deterioration in the operating performance coupled with a radical increase in the region's total risk. 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 70 64 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 908 72 03 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' dated 9 April 2013 are available at 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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