Link to Fitch Ratings' Report: Kostroma Region - Rating Action
ReportLONDON/MOSCOW/FRANKFURT, February 07 (Fitch) Fitch Ratings has
Kostroma Region's Outlooks to Stable from Positive, and affirmed
foreign and local currency Issuer Default Ratings (IDR) at 'B+'
and its National
Long-term Rating at 'A(rus)'. The agency has also affirmed
foreign currency IDR at 'B'.
The rating action affects the region's outstanding senior
bonds of RUB5.9bn (ISINs RU000A0JU6N4, RU000A0JRWS5).
KEY RATING DRIVERS
The Outlook revision reflects the following rating drivers and
- Large and Growing Direct Risk
The region's direct risk unexpectedly worsened by 14% at
end-2013 to stand at
67% of current revenue, as its deficit before debt widened.
Fitch had expected a
balanced budget to keep direct risk under control. Fitch now
region's direct risk to continue deteriorating and to equal 81%
revenue by end-2016. The region reported a deficit of 10.5% of
total revenue in
2013, compared with a surplus of 0.4% in 2012. Fitch expects the
deficit will gradually improve by 2016 but still represent 6%-7%
- Refinancing Pressure
The region is dependent on access to capital markets for
maturing debt after a close to zero current balance in 2013 led
to weak debt
coverage (direct risk/current balance). As much of its debt is
Kostroma is facing repayment of 43% of total direct risk during
Meanwhile, the administration is seeking to lengthen its debt
end-2013 it contracted a RUB1,475m loan from the federal budget
three-year maturity and issued RUB3bn five-year domestic bonds.
transactions extend the region's direct risk maturity profile
till 2018 and help
to postpone refinancing.
- Operating Performance Deteriorates
Smaller-than-expected operating revenue and larger operating
from a national government decision to increase public sector
salaries, led to a
deterioration in operating balance to 3.6% of operating revenue
in 2013 (2012:
12.7%). Fitch expects a negative current balance in 2014
according to preliminary figures for 2013) with an operating
margin of 4%.
Historically, the region has suffered volatile operating
from increased expenditure responsibilities, which rigid
revenues were unable to
Kostroma region's ratings also reflect the following key rating
- Weak Fiscal Capacity
Kostroma's tax base is historically modest, limiting its
capacity. It is, however, supplemented by steady financial aid
from the federal
government. Federal current transfers averaged 31% of the
revenue in 2012 and 2013, helping to improve its budgetary
expects Kostroma to receive federal transfers in the range of
operating revenue in 2014-2016.
- Modest Economy, Steady Growth
According to preliminary estimates the region expects the local
economy to have
expanded 3.5% in 2013, which would be above national growth.
economic growth Kostroma's socio-economic profile is weaker than
Russian region. The region's per capita gross regional product
was 23% below the
national median in 2011.
The ratings may be upgraded if the region records an operating
balance at 5% of
operating revenue on a sustained base, accompanied by direct
risk stabilising at
below 70% of current revenue and by declining reliance on
short-term bank loans.
Further growth of the region's total indebtedness above 80% of
accompanied by persistent refinancing pressure and a negative
would lead to a downgrade.
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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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