June 16, 2017 / 8:18 PM / a month ago

Fitch Affirms Russia's Kirov Region at 'BB-'; Outlook Stable

13 Min Read

(The following statement was released by the rating agency) MOSCOW, June 16 (Fitch) Fitch Ratings has affirmed Russian Kirov Region's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-' and Short-Term Foreign Currency IDR at 'B'. The Outlooks on the Long-Term IDRs are Stable. KEY RATING DRIVERS The 'BB-' ratings reflect the region's growing direct risk, fragile operating performance and modest economic indicators amid a weak Russian institutional framework. The ratings also factor in consolidation of the region's fiscal performance with a narrowing deficit before debt variation and continuous support from the federal government in the form of low-cost budget loans and transfers. Fitch projects Kirov Region's operating balance will be at 4%-5% of operating revenue in 2017-2019 (2016: 3.4%), which will remain sufficient to cover interest payments. This will be supported by higher current transfers from the federal budget due to favourable changes in the formula of federal grant calculation amid expected stagnation of tax revenue. In 2015-2016, Kirov Region gradually restored its operating balance to record a small positive current balance as its government kept operating expenditure (opex) almost unchanged with strict cost control measures. Fitch forecasts the region will further narrow its deficit before debt variation to about 3% of total revenue in 2017-2019 by maintaining growth of opex below that of operating revenue and postponing material capital expenditure. Kirov Region had gradually shrunk its deficit to 6% in 2016 from a peak of 14.3% in 2013. The region's government is committed to a balanced budget in 2017-2019, driven by requirements imposed by the Ministry of Finance as a condition for budget loan grants to the region. However, Fitch does not expect the balanced budget target to be met given slow growth of operating revenue and limited expenditure flexibility. We expect deficit shrinkage to be gradual, which could call for additional support from the federal government as the region's fiscal capacity remains low. Kirov's tax-raising ability is limited by the modest size of the regional tax base and low autonomy in setting tax rates. Most expenditure is social-oriented and therefore rather rigid, while capital expenditure has already been cut back towards 10% of total expenditure. Fitch forecasts the region's direct risk will gradually increase to RUB30 billion by end-2019 from RUB26 billion at end-2016, but remain almost stable relative to current revenue (2016: 65%). Debt burden is high relative to national peers; however, the risk is mitigated by material low-cost budget loans (about 60% of risk at end-2016) as a share of total debt, which helps the region to save on interest expenses. Remaining debt consists of one-to three- year bank loans, which amounted to a moderate 26.5% of current revenue at end-2016. The region remains exposed to refinancing risk due to its short-term debt repayment schedule and low cash balance (end-2016: RUB231 million). It leaves the region dependent on access to debt markets to refinance maturing debt. About 97% of its direct risk is due in 2017-2019. By end-2017, Kirov needs to repay RUB7.9 billion, which consists almost entirely of bank loans. The region plans to fund its refinancing needs with RUB3.6 billion contracted but undrawn credit lines and a RUB0.8 billion budget loan. The remaining funding needs will be covered by new credit lines the region plans to attract in 2H17. Kirov's economic profile is weaker than the average Russian region. Its gross regional product (GRP) per capita was 65% of the national median in 2015. However, the economy is diversified and its major taxpayers are spread across various sectors. The 10-largest taxpayers contributed less than 20% of Kirov's tax revenue in 2016. Based on the region's estimates, GRP contracted 1.8% in 2016 (2015: 0.8%), in line with the national economic trend, and will likely demonstrate close to zero growth in 2017-2019. The recovery of Russia's economy with expected GDP growth of 1.4%-2.2% in 2017-2018, according to Fitch forecasts, would be supportive of the local economy. Russia's institutional framework for sub-nationals is a constraint on the region's ratings. Frequent changes in the allocation of revenue sources and in the assignment of expenditure responsibilities between the tiers of government hamper the forecasting ability of local and regional governments (LRGs) in Russia. RATING SENSITIVITIES An improvement in the operating margin towards 10%, coupled with a debt payback ratio (direct risk-to-current balance) of around 10 years (2016: 103) on a sustained basis, could lead to an upgrade. The inability to maintain a positive operating margin on a sustained basis or an increase in direct risk above 80% of current revenue could lead to a downgrade. Contact: Primary Analyst Elena Ozhegova Director +7 495 956 2406 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Vladimir Redkin Senior Director +7 495 956 2405 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Fitch has made a number of adjustments to the official accounts in order to make the LRG comparable internationally for analyses purposes. For Kirov Region these adjustments include: - Transfers of capital nature received were re-classified from operating revenue to capital revenue. - Transfers of capital nature made were re-classified from operating expenditure to capital expenditure. - Goods and services of capital nature were re-classified from operating expenditure to capital expenditure. Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below