(The following statement was released by the rating agency)
MOSCOW, September 09 (Fitch) Fitch Ratings has affirmed Russian
Region's Long-Term Foreign and Local Currency Issuer Default
Ratings (IDR) at
'BB', Short-Term Foreign Currency IDR at 'B' and National
Long-Term Rating at
'AA-(rus)'. The Outlooks on the Long-Term IDRs and National
Long-Term Rating are
The region's outstanding senior unsecured domestic bonds have
been affirmed at
Long-term local currency 'BB' and National Long-term 'AA-(rus)'.
The affirmation reflects Fitch's unchanged baseline scenario
Novgorod Region's satisfactory budgetary performance. The
reflects growing direct risk accompanied by high refinancing
deteriorating operating performance.
KEY RATING DRIVERS
The 'BB' ratings reflect the satisfactory budgetary performance
Novgorod Region with a small positive operating balance, but
also its ongoing
budget deficit leading to debt increase. The ratings further
take into account a
large and diversified local economy, albeit suffering from a
Fitch expects Nizhniy Novgorod Region's operating balance will
stabilise at low
5%-6% of operating revenue over the medium-term, down from an
average 8.8% in
2011-2015, due to sluggish tax proceeds amid the national
economic slowdown. The
agency expects a current balance at around 1% per year in
down by growing interest payments. This will place the region's
According to Fitch's baseline scenario, the region's direct risk
towards 70% of current revenue in 2016-2017 and stabilise at
this level due to
likely cuts in capex after the commissioning of major projects
World Cup 2018. The agency estimates that the region's deficit
before debt will
narrow to 3%-4% by 2018, from 7.5% in 2015.
In 2015 direct risk grew 12% to RUB73.2bn or 63.5% of current
revenue. In June
2016 the region placed RUB10bn seven-year domestic bonds, after
RUB12bn five-year bonds in 2015. This shifted the debt structure
towards a higher proportion of medium-term debt instruments. As
weighted average maturity improved to 3.2 years at end-1H16 from
1.9 years in
Despite the above-mentioned improvement, the region remains
refinancing pressure over the medium-term as 69% of its direct
risk will mature
in 2016-2018. As of 1 July 2016 the region's refinancing needs
for this year
stood at RUB16.4bn (24% of outstanding debt), but this is
mitigated by RUB50bn
undrawn bank credit facilities. Furthermore in August 2016 the
contracted a budget loan of RUB6.3bn to refinance market debt.
Nizhniy Novgorod Region has a diversified economy with a fairly
industrialised sector and a broad tax base, supporting wealth
metrics that are
slightly above the national median. The region is among the top
regions in gross regional product (GRP) volume and has a
population of 3.3
million people (1.7% of Russia's). GRP stagnated in 2015, albeit
better than the
wider Russian economy (-3.7%) due to firm performance of the
Additionally, the region benefits from increased military
spending as it hosts
the sector's production facilities.
The region's credit profile remains constrained by the weak
framework for local and regional governments (LRGs) in Russia.
institutional framework for LRGs has a shorter record of stable
many international peers. The predictability of Russian LRGs'
is hampered by the frequent reallocation of revenue and
responsibilities among government tiers.
An increase in direct risk to above 70% of current revenue,
ongoing refinancing pressure or an inability to maintain a
current balance, could lead to a downgrade.
+7 495 956 99 80
Fitch Ratings CIS Ltd
26 Valovaya Street
+7 495 956 99 01
+49 69 768076 111
Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495
956 9908, Email:
firstname.lastname@example.org; Peter Fitzpatrick,
London, Tel: +44 20
3530 1103, Email: email@example.com.
Additional information is available on www.fitchratings.com
Fitch has made a number of adjustments to the official accounts
in order to make
the LRG comparable internationally for analyses purposes:
- Transfers of capital nature received were re-classified from
to capital revenue.
- Transfers of capital nature made were re-classified from
to capital expenditure.
- Goods and services of capital nature were re-classified from
expenditure to capital expenditure.
International Local and Regional Governments Rating Criteria -
United States (pub. 18 Apr 2016)
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