(The following statement was released by the rating agency)
MOSCOW, June 10 (Fitch) Fitch Ratings has affirmed the Russian
Republic's (Chuvashia) Long-Term Foreign and Local Currency
Ratings (IDRs) at 'BB+', with Negative Outlooks, and Short-Term
IDR at 'B'. The agency has also affirmed the republic's National
Rating at 'AA(rus)' with a Negative Outlook.
The republic's outstanding senior unsecured domestic bond
ratings have been
affirmed at 'BB+' and 'AA(rus)'.
The affirmation reflects the republic's stable key credit
metrics over the past
six months, although the Negative Outlook reflects Fitch's
debt metrics will weaken due to growing direct risk amid
KEY RATING DRIVERS
The 'BB+' rating reflects Chuvashia's moderate, but growing,
direct risk as well
as satisfactory, albeit weakened, budgetary performance compared
historical average. The ratings also take into account a
downturn, which could negatively influence the republic's
financials and a weak
institutional framework for Russian sub-nationals.
Fitch expects the republic's direct risk to grow towards 52% of
by end-2018, due to continuing budget deficit, from 42% in 2015
and 34% in 2014.
However, the adverse effect of this increase is partly mitigated
improvement to the region's debt profile. The proportion of
decreased to 38% of total outstanding at end-2015, from 73% at
following the receipt of RUB6.3bn loans from the federal budget,
region had used to refinance short-term bank loans. The budget
loans have a
three-year maturity and carry negligible interest rates, which
will help the
republic to save on interest payments.
Fitch projects the republic's budgetary performance will remain
with a 7%-8% operating margin over the medium term. In 2015, the
balance increased to 8.4% of operating revenue in 2015 from 7.6%
in 2014, which
is still below the 13.9% seen in 2013. The improvement was due
optimisation by the administration as well as higher corporate
income tax (up
9.6% yoy) and excise duties (up 16.1% yoy). Fitch expects the
budget deficit to
narrow to 5% in 2016-2018 from 7.6% in 2015, driven by cuts in
and control over opex.
Refinancing pressure on the budget will persist over the medium
term as the
region will have to repay about 89% of its direct risk during
2016-2018. In the
near term refinancing needs for 2016 are limited to the
repayment of RUB0.2bn
amortising bonds and RUB3.3bn budget loans (of which RUB2.5bn
treasury loans). Undrawn credit lines with banks total
RUB11.3bn, which cover
the region's 2016 refinancing needs by 3x.
The republic's socio-economic profile is historically weaker
than that of the
average Russian region. Its per capita gross regional product
was 35% lower than
the national median in 2014. However, Chuvashia has a
industry-oriented economy with a broad tax base, ie the 10
represent only 23% of tax proceeds. According to the
the republic's economy contracted 5.5% in 2015, worse than the
3.7% fall in
national GDP. Fitch expects the Russian economy will contract
0.7% in 2016,
which could negatively impact the republic's economic prospects.
Russia's institutional framework for sub-nationals is a
constraint on the
republic's ratings. Frequent changes in the allocation of
revenue sources and in
the assignment of expenditure responsibilities between the tiers
hampers the forecasting ability of local and regional
governments in Russia.
Sharp growth of direct risk to above 50% of current revenue,
growing refinancing pressure and further deterioration of
could lead to a downgrade.
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Fitch has made a number of adjustments to the official accounts
in order to make
the LRG comparable internationally for analytical purposes. For
- Transfers of capital nature received were re-classified from
to capital revenue.
- Transfers of capital nature disbursed were re-classified from
expenditure to capital expenditure.
- Goods and services of capital nature were re-classified from
expenditure to capital expenditure.
Additional information is available on www.fitchratings.com
International Local and Regional Governments Rating Criteria -
United States (pub. 18 Apr 2016)
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