Fitch Revises Ulyanovsk Region's Outlook to Negative; Affirms at 'BB-'

Fri Mar 21, 2014 12:38pm EDT

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Ulyanovsk Region - Rating Action Report here LONDON/MOSCOW/FRANKFURT, March 21 (Fitch) Fitch Ratings has revised Ulyanovsk Region's Outlook to Negative from Stable. The agency has affirmed the region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-', National Long-term rating at 'A+(rus)' and Short-term foreign currency IDR at 'B'. KEY RATING DRIVERS The Outlook revision reflects the following rating drivers and their relative weights: High: The region's budgetary performance in 2013 was weaker than expected with a negative operating balance at 7% of operating revenue. Fitch expects the operating balance to remain negative in 2014 before turning slightly positive in 2015. The sharp deterioration of operating performance in 2013 was caused by operating expenditure growth due to the federal government's decision to increase salary of public sector employees. The region also recorded a decline in corporate income tax collection, due to an economic slowdown and a change in tax regime that was not compensated by additional transfers from the federal budget. Medium: Fitch expects Ulyanovsk's direct risk to increase to 50%-55% of current revenue in 2016 (2013: 41%) as a result of continued budget deficit. Fitch estimates that Ulyanovsk will have a deficit before debt variation of about 10% of total revenue in 2014 (2013: 15.6%) before gradually narrowing to 5%-6% by 2016. Nevertheless, direct risk is still moderate compared with international peers. Debt coverage (direct risk/current balance) will remain low over the medium term, due to a weak current balance. This makes the region dependent on access to debt markets for refinancing debt and capex funding. Refinancing risk exists over the medium term. The region relies on mostly bank loans with a three-year maturity and faces RUB6.9bn of maturing debt during 2014-2015, equivalent to 56% of total risk at end-February 2014. The administration intends to lengthen its debt maturity profile and in December 2013 and January 2014 contracted RUB1.7bn of credit lines with local banks with a five-year maturity. Fitch considers that Ulyanovsk has fair access to capital markets and does not expect the region to have refinancing difficulties in 2014. Ulyanovsk Region's ratings also reflect the following key rating drivers: The region's economy is modest in size and per capita gross regional product was 20% lower than the national median in 2011. This has resulted in a low self-financing capacity for capital outlays and dependence on federal capital grants and external borrowing. Capital grants from the federal budget covered about half of the region's capital spending during 2012-2013 and the remainder was financed by new debt. RATING SENSITIVITIES A continued negative operating balance, coupled with an inability to lengthen debt maturity profile, would lead to a downgrade. Contact: Primary Analyst Elena Ozhegova Associate Director +7 495 956 99 87 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 115054 Secondary Analyst Vladimir Redkin Senior Director +7 495 956 99 01 Committee Chairperson Guido Bach Senior Director +49 69 76 80 76 111 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 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.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.