Fitch Affirms Russia's Mari El Republic at 'BB'; Outlook Stable

Fri May 16, 2014 11:38am EDT

(The following statement was released by the rating agency) MOSCOW/MILAN/LONDON, May 16 (Fitch) Fitch Ratings has affirmed the Russian Mari El Republic'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 republic's National Long-term rating at 'AA-(rus)' with Stable Outlook. Mari El's outstanding senior unsecured domestic bonds have also been affirmed at 'BB' and 'AA-(rus)'. KEY RATING DRIVERS Fitch expects Mari El to continue posting sound budgetary performance in 2014-2016, with margins comfortably at 8%-9% (2013: 9%). The republic's deficit before debt variation remained at a reasonable 7.7% of total revenue in 2013 (2012: 9.6%). The federal government's election pledges to raise public sector salaries and fund other social programmes will continue to fuel growth of the republic's operating expenditure in the medium term. However, the region's prudent fiscal management should help prevent aggressive growth in opex. Fitch expects moderate increase in the republic's direct risk to about 50% of current revenue in 2014 and 55%-60% in 2015-2016 to fund its forecasted budget deficit. The republic's direct risk rose to 47% in 2013 in line with Fitch's expectations (2012: 41%). Mari El used 2013 debt to fund some of its capital outlays and to finance its budget deficit. The republic's debt stock is concentrated, with 72% of medium-term bank loans. The rest is accounted for by domestic bonds (14%), federal budget loans (13%) and short-term bank loans (1%). Fitch assesses Mari El's immediate refinancing risk as moderate, given its plans to continue issuing medium-term bonds in 2014, supplemented by bank loans with maturities of over 36 months. Fitch expects the republic's contingent risk to remain limited to the debt of its public sector entities and guarantees, and no new guarantees are expected to be issued in 2014-2016. Mari El's cash reserves declined to RUB264m in 2013 from RUB476m a year earlier as they were used to fund the republic's budget deficit. Liquidity is also supported by untapped committed credit lines totaling RUB336m as of end-March 2014. Mari El's socio-economic profile is historically weaker than the average of other Russian regions. Its per capita gross regional product (GRP) was about 30% lower than the national median in 2012. Mari El's economy slowed down in 2013 with GRP expanding 1.7% yoy (2012: 4.4% yoy). The republic's administration expects slow growth in the economy of around 3%-3.5% yoy in 2014-2016. RATING SENSITIVITIES The ratings could be positively affected by improved budgetary performance leading to deficit before debt decreasing below 5% of total revenue, coupled with an extension of the debt maturity profile. Conversely, a downgrade or revision of the Outlook to Negative could result from sustained deterioration of operating performance with an operating margin below 5%, coupled with weaker debt coverage (2013: 8 years) exceeding average debt maturity (2013: 4 years) over the medium term. Contact: Primary Analyst Konstantin Anglichanov Director +7 495 956-9994 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Elena Ozhegova Associate Director +7 495 956-9987 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 on 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 23 April 2014, are available on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria - Outside the United States 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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After wave of QE, onus shifts to leaders to boost economy

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