March 4, 2016 / 5:06 PM / 3 years ago

Fitch Affirms Russia's Republic of Sakha at 'BBB-'; Outlook Negative

(The following statement was released by the rating agency) LONDON/MOSCOW/FRANKFURT, March 04 (Fitch) Fitch Ratings has affirmed the Russian Republic of Sakha's (Yakutia) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-', Short-term foreign currency IDR at 'F3' and National Long-term rating at 'AA+(rus)'. The Outlooks on the Long-term IDRs are Negative and the Outlook on the National Long-term rating is Stable. The republic's senior debt ratings have been affirmed at Long-term local currency 'BBB-' and National Long-term 'AA+(rus)'. The affirmation reflects Fitch's unchanged baseline scenario regarding Sakha's strong budgetary performance, which should help keep key credit metrics stable. The Negative Outlook reflects that on the Russian Federation (BBB-/Negative). KEY RATING DRIVERS The ratings reflect Sakha's fairly low direct risk, and sound operating performance supported by a strong local economy. The ratings also take into account sizeable contingent liabilities, the concentrated nature of the republic's tax base amid difficult economic conditions in Russia. In its base case scenario Fitch expects Sakha to maintain moderate levels of debt at below 30% of current revenue at least in 2016, before potentially rising to 32%-37% in 2017-2018 (2015: estimated 17%). Sakha's debt portfolio is fairly well-diversified, with an average maturity of around two years. The region's 2015 debt stock was 45% composed of domestic bonds, followed by bank loans (31%) and loans contracted from the federal government (24%). The republic's refinancing peak is in 2016-2017 with scheduled maturities of about 70% of its outstanding direct risk. This is, however, mitigated by the region's sound fiscal flexibility and good access to domestic capital markets alongside low-cost budget loans from the federal government. The republic's exposure to contingent risk is likely to remain manageable and consistent with the current ratings over the medium-term, due to adequate control exercised by the administration. We estimate the republic's net overall risk to have increased slightly to 38.5% of current revenue in 2015 from 36.5% in 2014. Sakha faces a need to support under-developed infrastructure across the region's vast territory amid harsh climatic conditions but a disproportionate growth of contingent risk will put the region's creditworthiness under pressure. Fitch expects Sakha to maintain sound operating surpluses at about 9%-11% of operating revenue in the medium-term, supported by continuous growth of tax revenue. Taxation rose to 57% of total revenue at end-2105 (2014: 53%) according to our preliminary estimates, with operating revenue up 12% yoy. Current transfers, on the contrary, dropped to 37% of operating revenue from an average of 45% of in 2011-2014. Sakha has a strong economic profile supported by rich deposits of natural resources, such as diamonds, coal, oil, natural gas and gold. The region's prime taxpayers are mostly national champions in development of natural resources. The republic's 2014 gross regional product per capita and average salary was 2.2x and 2.5x, respectively, higher than the national median. At the same time the regional economy remains concentrated as the top 10 taxpayers' contributions increased to 63% of the consolidated regional budget's tax revenue in 2015 from 60% a year earlier. This poses a risk in the medium term, due to the volatile nature of commodities' markets. The republic's 2015 tax revenue was boosted by rouble depreciation, which positively affected taxpayers' revenue in the mining and oil and gas sectors. Additionally new mining fixed assets were commissioned in the region last year, leading to increased property tax proceeds. RATING SENSITIVITIES A downgrade of Russia or growth of net overall risk to above 50% of current revenue, coupled with a sharp deterioration of its direct debt-to-current balance ratio, would lead to a downgrade. Contact: Primary Analyst Konstantin Anglichanov Director +7 495 956 9994 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Alexey Kobylyanskiy Analyst +7 495 956 9901 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria (pub. 18 May 2015) here Tax-Supported Rating Criteria (pub. 14 Aug 2012) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1000475 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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