-- Russia's Tomsk Oblast's budgetary performance will likely be moderate
in 2012-2013 due to cost-containment measures, and its cash and committed
facilities cover debt service over the next 12 months, in line with our
-- The oblast plans to issue an amortizing senior unsecured bond of up to
Russian ruble (RUB) 5 billion (about $160 million) before the end of this year.
-- We are affirming our 'BB' long-term rating and 'ruAA' national scale
rating on Tomsk and assigning a 'BB' issue rating and '3' recovery rating to
the proposed debt.
-- The stable outlook reflects our expectation that the oblast will
deliver a moderate financial performance and continue the existing borrowing
and liquidity policies.
On Dec. 12, 2012, Standard & Poor's Ratings Services affirmed its 'BB' issuer
credit rating and 'ruAA' national scale rating on the Russian region Tomsk
Oblast. The outlook is stable.
At the same time, we assigned a 'BB' issue rating to the oblast's proposed
senior unsecured five-year amortizing bond of up to RUB5 billion (about $160
million), partly to be placed in late 2012. The recovery rating on the
proposed debt is '3' indicating our expectation of meaningful (50%-70%)
recovery for bondholders in the event of a payment default.
The ratings on Tomsk Oblast incorporate our view of its limited financial
flexibility and predictability, exacerbated by relatively large infrastructure
needs and the dependence of its revenues on volatile commodity markets.
Offsetting these factors are our expectation of the oblast's ability to
deliver moderate budgetary performance and Tomsk's modest debt burden.
Like many other Russian regions, Tomsk Oblast has limited control over its
revenues, the predominant share of which comprise centrally regulated taxes
and federal subsidies. Also, the oblast faces high infrastructure needs over
the long term, further constraining its budgetary flexibility.
Moreover, the oblast's creditworthiness suffers from low predictability of its
financial indicators. Despite the growth of services, the regional economy
remains dependent on the oil and gas sector, which accounts for about 25% of
its gross regional product and 30% of budget revenues. This exposes Tomsk's
economy to volatility in global commodity markets and limited visibility
concerning Russia's tax regime for the natural resource extraction sector. The
oblast, backed by the federal government, strives to foster diversification of
the local economy by using its developed educational and scientific base. We
therefore assume that these efforts will only have a visible impact on the
oblast's tax base in the long term.
In addition, Tomsk's budgetary performance will be challenged by the federal
government's recent decision to significantly raise regional public-sector
salaries. This will subject Tomsk to significant long-term spending pressure
because the federal government is unlikely to fully compensate it for the
higher imposed expenditures, which will somewhat undermine the oblast's
performance after solid financial results in 2010-2011.
Nevertheless, in our base-case scenario we assume that Tomsk Oblast will be
able to deliver a moderate budgetary performance in 2013-2015, with operating
surpluses of 1.5% of operating revenues and deficits after capital accounts of
2%-2.5% of adjusted total revenues on average. This scenario is based on the
oblast's positive track record in containing costs, the relatively
conservative three-year budget proposed by its new governor (zero deficits in
2014-2015), and continued moderate support from the federal budget. Also in
case of stress the oblast has the flexibility to postpone certain capital
Despite a minor increase, the oblast's low tax-supported debt (which includes
direct debt and guarantees) is likely to remain below 30% of consolidated
operating revenues through to 2015.
We regard the oblast's liquidity as "neutral", as defined in our criteria. In
accordance with our base-case scenario, the oblast's cash and committed
facilities will sufficiently cover its debt service within the next 12 months.
The liquidity position is somewhat mitigated by the oblast's "limited" access
to external liquidity, due to weaknesses in the Russian capital market and
This year, some erosion of the financial performance has weakened the oblast's
cash position, with free cash averaging RUB2 billion compared with more than
RUB3 billion in 2011. However, the oblast has prudently secured access to
committed bank facilities. In early December 2012, its two-year to three-year
committed bank lines totaled RUB5.5 billion, of which more than 70% is
undrawn. According to our base case, free cash and undrawn facilities should
still cover Tomsk's debt service needs over the next 12 months.
We assume in our base case that Tomsk will maintain its policy of attracting
medium- to long-term borrowings. This will likely support a smooth debt
repayment profile in the medium term and keep debt service below 10% of
The oblast currently has good access to domestic loans. However, Russia's
capital markets are volatile, and we view access to external liquidity as
"limited". The weaknesses of the domestic banking sector are reflected in our
Banking Industry Country Risk Assessment (BICRA), which classifies Russia in
group '7' on a scale of 1 to 19, with '1' denoting the lowest-risk banking
industry and '10' is the highest risk (see "BICRA On Russia Revised To Group
'7' From Group '8'," published on Nov. 9, 2011, on RatingsDirect on the Global
The recovery rating of '3' on the oblast's proposed unsecured debt indicates
our expectation of 50%-70% recovery in the event of a payment default. For
more information on our rationale for the recovery rating, see "Recovery
Ratings Assigned To Debt Of 22 LRGs; Issue Ratings On Those 22 LRGs Affirmed,"
published May 24, 2010.
The stable outlook reflects our base-case expectation that, despite
significant salary-related spending pressure triggered by federal decisions,
the oblast will deliver a moderate performance, backed by cautious spending
policies and some federal support. The outlook also factors in the
continuation of the oblast's shift to medium- and long-term borrowings and
existing management of committed facilities.
We could lower the rating over the next 12 months if rising spending pressure
were to lead to a significant weakening of the oblast's budgetary performance,
resulting in operating deficits in the medium term and higher debt. A change
in liquidity policies that caused the debt-service coverage ratio to fall
below 120%, could also be negative for the ratings.
On the other hand, a structurally stronger budgetary performance, with
operating surpluses consistently exceeding 5% of operating revenues, and cash
reserves that cover debt service within the next 12 months, as envisaged in
our upside case, could be positive for the rating. Economic growth that
translated into higher wealth levels would also be positive for the ratings in
the longer term.
Related Criteria And Research
-- BICRA On Russia Revised To Group '7' From Group '8', Nov. 9, 2011
-- Methodology For Rating International Local And Regional Governments,
Sept. 20, 2010
-- Recovery Ratings Assigned To Debt Of 22 LRGs; Issue Ratings On Those
22 LRGs Affirmed, May 24, 2010
-- Methodology And Assumptions For Analyzing The Liquidity Of Non-U.S.
Local And Regional Governments And Related Entities And For Rating Their
Commercial Paper Programs, Oct. 15, 2009
-- Assigning Recovery Ratings To International Local And Regional
Governments' Speculative-Grade Debt, Feb. 3, 2009
Issuer Credit Rating BB/Stable/--
Russia National Scale ruAA/--/--
Senior Unsecured BB
Senior Unsecured ruAA
Recovery Rating 3
Senior Unsecured BB
Senior Unsecured ruAA
Recovery Rating 3
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left