Fitch Revises Russian Tver Region's Outlook to Positive; Affirms at 'B'

Fri May 23, 2014 11:43am EDT

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Tver Region - Rating Action Report here MOSCOW/MILAN/LONDON, May 23 (Fitch) Fitch Ratings has revised Russian Tver Region's Outlook to Positive from Stable. The agency has affirmed the region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B', National Long-term rating at 'BBB+(rus)' and Short-term foreign currency IDR at 'B'. The ratings on the region's outstanding RUB9.6bn senior unsecured domestic bonds have been affirmed at 'B' and BBB+(rus)'. KEY RATING DRIVERS The Outlook revision reflects the following rating drivers and their relative weights: High: Fitch expects the region's fiscal performance will continue to improve in 2014-2016. The administration plans to maintain strict control over operating expenditure, which should lead to a firmer operating balance of about 5% of operating revenue from 2014 onwards. This, together with continued moderate capex levels, should contribute to a continued shrinking of the budget deficit before debt in the medium-term. The region's budgetary performance in 2013 improved beyond Fitch expectations. After two years of operating deficit the operating balance turned to a positive 3.7% of operating revenue in 2013, due to strict control over operating expenditure and support from the federal government in the form of additional current transfers. Fitch expects the overall budget deficit will further narrow to 7% of total revenue in 2014 and 4%-5% in 2015-2016 from 8.2% in 2013. This would represent a significant improvement from an average overall budget deficit of 11% of total revenue between 2009 and 2012, which led to a heavier debt burden relative to other Russian regions. Medium: Fitch expects direct risk to stabilise at below 65% of current revenue in 2014-2016. This will be supported by the narrowing deficit and the administration's ability to use accumulated cash for partial deficit financing. In 2013 the region's direct risk accounted for 62.7% of current revenue (2012: 59%). The region's contingent risk is close to zero as it is limited to the negligible debt of the region's public-sector entities. Tver Region's ratings also reflect the following key rating drivers: The region remains exposed to refinancing pressure in 2014-2016 as it has to redeem 88% of total debt stock. In 2014 the region has to refinance RUB5.2bn, which corresponds to 26% of direct risk. Fitch believes the region will refinance maturing debt in 2014 with the RUB7bn committed credit lines available from banks. The region plans to issue a domestic bond in 2014 if market conditions are favourable. The upcoming bond will have a five-year maturity, which will smooth out the region's maturity profile. The region has a moderately developed economy, which is dominated by a well-diversified industrial sector. Tver's GRP per capita was 18% below the national median in 2012. In 2013 GRP grew 1.3% yoy, in line with the national average. The administration expects the regional economy will see modest growth of 2% in 2014. Russia's institutional framework for subnationals is a constraining factor on the region's ratings. Frequent changes in allocation of revenue sources and assignment of expenditure responsibilities between the tiers of government limit the region's forecasting ability and negatively affect its fiscal capacity and financial flexibility. RATING SENSITIVITIES A sustained positive operating balance and narrowing of the budget deficit in line with Fitch's forecasts would lead to an upgrade. Contact: Primary Analyst Victoria Semerkhanova Associate Director +7 495 956 9965 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 115054 Secondary Analyst Vladimir Redkin Senior Director +7 495 956 9901 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 23 April 2014, are available on www.fitchratings.com. 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