Fitch Affirms Krasnoyarsk Region at 'BB+'; Outlook Stable

Fri Jun 6, 2014 11:34am EDT

(The following statement was released by the rating agency) MOSCOW, June 06 (Fitch) Fitch Ratings has affirmed the Russian Krasnoyarsk Region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB+', Short-term foreign currency IDR at 'B' and National Long-term rating at 'AA(rus)'. The Outlooks on the Long-term IDRs and the National Long-term rating are Stable. Krasnoyarsk region's outstanding senior unsecured domestic bonds have also been affirmed at 'BB+' and 'AA(rus)'. KEY RATING DRIVERS Fitch expects Krasnoyarsk region's operating performance to recover, with operating surpluses to be restored to about 3% of operating revenue in 2014 and up to 8%-12% in 2015-2016. The region recorded an operating deficit at 1% of operating revenue in 2013 due to changes in the fiscal regime and increased operating expenditure. The region's deficit before debt variation widened to 23% of total revenue in 2013 from 17% in 2012, but Fitch expects to gradually reverse over the medium term. New fiscal regulation enacted in 2013 allowed large corporations to form consolidated groups of taxpayers, equalise net financial results and employ advanced deprecation, resulting in tax revenue contraction of 1% yoy The federal government's 2012 election pledges to raise public sector salaries and fund other social programmes led to a 12% yoy increase of operating expenditure in 2013. Those factors are likely to continue to pressure operating expenditure over the medium term. The region's capital outlays decreased to 19% of total expenditure in 2013, after averaging 28% in 2009-2012 as a result of large-scale investments. Fitch expects Krasnoyarsk region to maintain capex at about 15% of total spending in the medium term. Fitch expects continued growth in Krasnoyarsk region's direct risk, up to 45% of current revenue in 2014 and 50% by end-2016, from 35% in 2013. The 2013 debt stock comprised 73% domestic bonds, 19% bank loans and 8% federal budget loans. The region placed a new bond of RUB10bn in May 2014 to meet its refinancing needs on maturing debt. As expected Krasnoyarsk region materially depleted its cash holdings to RUB4.7bn in 2013 (2012: RUB17.6bn) to fund its budget deficit. Cash held on accounts totalled RUB6.3bn as of the beginning of May 2014, which fully covers expected 2014 interest costs. The region's administration expects moderate growth in the local economy at about 2%-3% in 2014-2016. Economic growth in the region is underpinned by the development of power generation, oil and other natural resources and non-ferrous metallurgy sectors. The region's strong industrial profile supports above-national average wealth metrics. RATING SENSITIVITIES Continued increase in debt to above 50% of current revenue, accompanied by a weak operating margin below 5% in the medium term, would lead to downward pressure on the ratings. An upgrade is not likely under our baseline scenario, but could arise from consistently sound budgetary performance with an operating margin above 10%, leading to direct risk at below 30% of current revenue on a sustained basis. Contact: Primary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Vladimir Redkin Director +7 495 956 7064 Committee Chairperson Guido Bach Senior Director +49 69 76 807 6111 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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