Fitch Affirms Russian City of Krasnoyarsk at 'BB'; Outlook Stable

Fri Mar 21, 2014 12:37pm EDT

(The following statement was released by the rating agency) LONDON/MOSCOW/MILAN, March 21 (Fitch) Fitch Ratings has affirmed the Russian City of Krasnoyarsk's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB', with Stable Outlooks, and its Short-term foreign currency IDR at 'B'. The agency has also affirmed the city's National Long-term rating at 'AA-(rus)' with a Stable Outlook. KEY RATING DRIVERS The ratings reflect the city's developed local economy, sound budgetary performance and moderate, albeit growing, direct risk. The ratings also factor in refinancing pressure due to a large proportion of short-term bank loans and the city's continued budget deficit driven by capital expenditure. Fitch expects Krasnoyarsk to continue recording stable operating performance, with an operating balance of 9%-10% of operating revenue in 2014-2016. According to preliminary data the city recorded a 9.5% operating balance in 2013, which remains adequate for the city's debt servicing needs. Operating expenditure grew by a rapid 15% in 2013 following the federal government's decision to increase public sector employee salaries, which were mostly funded by increased current transfers from Krasnoyarsk Region that were earmarked for this expenditure. Fitch expects the city's direct risk to grow to RUB8.2bn by end-2014, which corresponds to a moderate 31% of projected full-year current revenue, from 28% in 2013. The city administration intends to limit the budget deficit such that its debt burden will remain below 35% of current revenue in 2015-2016. Krasnoyarsk is highly exposed to refinancing risk given the dominance of bank loans with an average maturity of between one and two years. More than 40% of the city's liabilities expire within the next 12 months, creating refinancing pressure. The administration intends to lengthen the debt maturity profile by shifting towards five-year bank loans. With a population of about one million, the city is the capital of Krasnoyarsk Region, one of the top 10 Russian regions by gross regional product. It has a strong industrial sector dominated by metallurgy and machine-building, which provides a strong tax base but exposes the city to volatile business cycles. RATING SENSITIVITIES Easing refinancing pressure with a longer direct risk maturity profile matching the city's debt coverage (direct risk/current revenue), coupled with sound budgetary performance in line with 2012-2013 levels, would lead to an upgrade. Deterioration of budgetary performance with an operating margin below 5%, coupled with an inability to ease refinancing pressure stemming from short-term bank loans, would lead to a downgrade. KEY ASSUMPTIONS - Russia's economy will continue to demonstrate modest economic growth. Fitch does not expect dramatic external macroeconomic shocks that could lead to significant deterioration of the city's tax base - Intergovernmental relations between Krasnoyarsk City and Krasnoyarsk Region will remain stable in 2014. Krasnoyarsk will continue to receive steady transfers from Krasnoyarsk Region, the bulk of which will be earmarked for social spending. - Krasnoyarsk will continue to have fair access to domestic financial markets sufficient for refinancing its maturing debt Contact: Primary Analyst Vladimir Redkin Director +7 495 956 9901 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Konstantin Anglichanov Director +7 495 956 9904 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 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 and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria here Additional Disclosure Solicitation Status here ALL 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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