Correct: Fitch Revises Russian City of Samara's Outlook to Positive; Affirms at 'BB'

Tue Aug 26, 2014 7:11am EDT

(The following statement was released by the rating agency) LONDON/MOSCOW/MILAN, August 26 (Fitch) This commentary replaces the version issued on 22 August to correct the National Long-term rating to 'AA-(rus)'. The correct text is as follows: Fitch Ratings has revised the Russian City of Samara's Outlook to Positive 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 'AA-(rus)' and its Short-term foreign currency IDR at 'B'. KEY RATING DRIVERS The Outlook revision reflects the following rating drivers and their relative weights: High: Fitch expects Samara's budgetary performance to stabilise at the current sound level with margins averaging 15% in 2014-2016. A strong operating balance underpins a high self-financing capacity for capex and should lead to a narrowing of the deficit before debt variation to a low 1%-2% of total revenue in 2014, from 5.4% in 2013. The city's operating balance reached a strong 15.7% of operating revenue in 2013 (2012: 12.5%). This improvement was partly driven by a positive net effect of reallocation of expenditure responsibilities and revenue sources between municipal and regional budgets during 2012 and 2013. Medium: Fitch expects the city's direct risk to remain low at 35% of current revenue (RUB6.9bn) by end-2014, slightly up from 32% (RUB6bn) a year earlier. The city intends to limit debt growth and has budgeted close to a zero fiscal balance for 2015-2016. This should lead to the debt stock stabilising at 33% of current revenue by 2016. Contingent risk is low as the city does not have outstanding guarantees and its public sector entities are self-sufficient. Despite a low debt burden Samara mostly relies on short-term bank loans for deficit financing. The city's direct risk stock as of 1 August 2014 was 77% composed of bank loans with less than one year to maturity. Although the short-term nature of loans, contracted from local banks, exposes the city to refinancing risk, it is mitigated by the city's strong liquidity, including committed lines of credit with local banks. Outstanding cash and committed credit lines amounted to RUB3,375m as of 1 August 2014 and fully cover bank loans due in 2H14. The city also plans to contract a RUB2bn revolving bank credit line with up to three-year maturity by end-2014. If the placement takes place it would replace part of the city's outstanding one-year bank loans and mitigate refinancing pressure. Samara's ratings also reflect the following key rating drivers: The city is the capital of Samara Region, which has a well-developed diversified economy, based on a strong industrial sector. Local companies' sound economic performance supports Samara's strong fiscal capacity, contributing 67% of operating revenue in 2013. Samara receives an insignificant amount of financial aid in the form of general-purpose grants from the region as its budget capacity is higher than that of other municipalities in the region. The city's self-financing capacity is strong with capital revenue and the current balance on average covering 90% of annual capex in 2013. Samara's capex is high relative to national peers. It accounted for 30% of total spending in 2013 (2012: 27%) as the city continuously funded development projects. Fitch expects the city's capex to gradually decline to 21%-23% of total spending during 2014-2015 following a decline in capital transfers from the regional government. Russia's institutional framework for subnationals is a constraining factor on the LRGs' 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 stability and financial flexibility. RATING SENSITIVITIES Narrowing of the deficit before debt variation leading to stabilisation of the overall debt burden at below 40% of current revenue, coupled with the maintenance of sound budgetary performance in line with Fitch's expectations, would be positive for the ratings. Contact: Primary Analyst Vladimir Redkin Senior Director +7 495 956 9901 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 115054 Secondary Analyst Victoria Semerkhanova Associate Director +7 495 956 9965 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. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria (Outside the United States) – Effective Apr. 19, 2011 to Mar. 5, 2012 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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