MOSCOW, February 21 (Fitch) Fitch Ratings has affirmed Smolensk
Long-term foreign and local currency Issuer Default Ratings
(IDR) at 'B+',
Short-term foreign currency IDR at 'B' and National Long-term
'A-(rus)'. The Outlook is Negative.
Fitch has also assigned Smolensk's outstanding senior unsecured
(ISIN RU000A0JU6N4) of RUB3bn a Long-term local currency rating
of 'B+' and a
National Long-term rating of 'A-(rus)'.
KEY RATING DRIVERS
The ratings reflect the region's rapidly rising debt, which
increased 39% in
2013 to about RUB20bn. This was equivalent to 73% of its current
region's deficit widened to an exceptional 24.7% of total
revenue in 2013 from
5.2% in 2012. This was due to lower-than-expected tax proceeds
expenditure linked to infrastructure modernisation ahead of the
anniversary of the region's capital, the City of Smolensk. Capex
the previous year also contributed to the worsened budget
Fitch expects the region's deficit to narrow to 8.3% of total
revenue in 2014
due to capex cuts and higher tax revenues. This would lead to a
slowdown of debt
growth and Fitch expects the region's direct risk to not exceed
80% of current
revenue between 2014 and 2016.
Smolensk has low immediate refinancing risk with only 2.6% of
total direct risk
maturing in 2014. The region's administration improved its debt
profile in 2013
by increasing the share of long-term liabilities. The region
contracted a RUB7bn
loan from the federal budget with a three-year maturity and
five-year amortising bonds in 4Q13. This has extended the direct
profile till 2018.
However, the region faces significant refinancing in 2015 and
2016, with 87% or
RUB17.5bn of direct risk maturing during this period. Fitch does
not expect the
region to face difficulties in refinancing, although a weak
leaves the region dependent on access to capital markets for
capex funding in the medium term.
Fitch expects the region's operating performance to remain weak
with a positive, but close to zero, operating balance. According
data the operating balance turned positive at 0.8% of operating
revenue in 2013
(negative 1% in 2012), but the current balance remained in
Historically, the region has suffered from weak budgetary
performance with a
negative operating balance between 2007 and 2012.
The region has a weak tax capacity, with federal transfers
significant proportion of total revenue (about 38% in 2012). It
transfers for operating and investment spending, which are, to a
earmarked for specific purposes. During 2012-2013 current
on average 25% of current revenue, while capital transfers
covered 49% of capex.
However, federal transfers provide some stability during
recession, making the
region less vulnerable to negative external shocks.
The region's high direct risk at above 70% of current revenue,
accompanied by an
inability to maintain a positive operating balance would lead to
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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',
dated 9 April
2013, are available on www.fitchratings.com.
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