Fitch Affirms Ryazan Region at 'B+'; Outlook Negative

Fri Feb 7, 2014 11:45am EST

LONDON/FRANKFURT/MOSCOW, February 07 (Fitch) Fitch Ratings has affirmed Ryazan Region's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B+', Short-term foreign currency IDR at 'B' and National Long-term rating at 'A(rus)'. The Outlook is Negative. The rating action also affects the region's RUB3.3bn outstanding senior unsecured domestic bond issues (ISIN RU000A0JR5G5 and ISIN RU000A0JTGF1). KEY RATING DRIVERS The ratings reflect the region's elevated debt levels, which are one of the highest among Fitch-rated Russian local and regional governments. Fitch expects further growth of the region's direct risk in 2014-2016, which will exceed 80% of current revenue by end-2014. At end-2013 the region's direct risk reached 75% of current revenue (2012: 72%). Fitch estimates Ryazan region's immediate refinancing needs as substantial because 44% or RUB10.8bn of direct risk matures in 2014. The agency does not expect the region to face difficulties in refinancing. However, should the financial markets worsen the region will have to rely on assistance from the federal government. Fitch believes that federal government election pledges to raise public sector salaries will continue to fuel growth of operating expenditure in 2014, while revenue growth will not return to pre-2012 levels due to the economic slowdown. The region's preliminary estimates show overall deficit widening to 18% in 2013 (2012: 12%) and a lower operating surplus at 2.4% (2012: 4.3%). Ryazan Region's debt coverage and debt servicing ratios are at unsustainable levels due to its low operating surpluses. This implies the region may have to service part of its debt with new borrowings. Fitch forecasts that these ratios will remain weak in the foreseeable future. The region's economy is modest in the national context but is fairly diversified and benefits from close proximity to Moscow, the country's capital. Gross regional product per capita was 84% of the national median in 2011. RATING SENSITIVITIES Direct risk exceeding 80% of current revenue or inability to post a sufficient operating balance to cover interest payments would lead to a downgrade. Contact: Primary Analyst Behruz Ismailov Associate Director +7 495 956 99 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 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 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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