MOSCOW, December 09 (Fitch) Fitch Ratings has affirmed Krasnodar
Long-term foreign and local currency ratings at 'BB+', its
rating at 'AA(rus)' and its Short-term foreign currency rating
at 'B'. The
Outlooks on the Long-term ratings are Stable.
Krasnodar Region's outstanding senior unsecured domestic bonds
RU000A0JTBA3 and RU000A0JR225) of RUB14bn have also been
affirmed at 'BB+' and
KEY RATING DRIVERS
Fitch expects Krasnodar Region's direct risk to stabilise at
about 40%-46% of
current revenue in 2013-2015, after having increased to 47% in
2012 from 30% in
2011. Rapid debt growth was primarily attributed to the Winter
which the region will host in February 2014. Federal budget
subsidised interest rates and prolonged maturities comprised 52%
of the region's
direct risk in 2012.
The region's debt portfolio is diversified. Domestic bonds,
2014-2017, accounted for 22% of 2012 direct risk while
commercial bank loans
stood at 26%. The region's cash position was strong with RUB22bn
at end-2012. However, a significant portion of the region's
liquidity has been
committed to capital projects.
Fitch expects the region's sound operating performance to
continue in 2013-2015
with an operating margin at about 10%, underpinned by its broad
and dynamic tax
base. Tax revenue has grown about 20% yoy in 2010-2012. The
operating balance is
strong and well above the region's debt-servicing liabilities.
Krasnodar Region's capex peaked at 40% of total expenditure in
from an average of 25% in 2007-2011. Fitch expects the region to
near-balanced budgets starting in 2014 as major infrastructure
projects will be
completed by end-2013.
Krasnodar Region has a strong and well-diversified economy,
which provides a
broad tax base and growing tax revenue flows. The region has
sea ports with cargo turnover representing about 40% of Russia's
turnover. The region is home to a developed agricultural sector,
a wide range of
industries, and seaside and ski resorts.
Strong budgetary performance with an operating margin at about
20% over the
medium-term, coupled with stabilisation of direct risk, would
lead to an
Debt growth leading to a sharp deterioration of direct
above the average maturity (currently 11 years) of the region's
debt would lead
to a downgrade.
Russia has an evolving institutional framework with
between federal, regional and local governments still under
However, Fitch expects Krasnodar Region will continue to receive
a steady flow
of earmarked transfers from the federation.
The region will continue to have fair access to domestic
financial markets to
enable it to refinance maturing debt.
Krasnodar Region will continue to benefit from the revenue
inflow underpinned by
a strong industrial base and natural resource endowment. The
local economy will
continue to demonstrate modest economic growth.
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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
States', dated dated 9 April 2013, are available on
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