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Fitch Affirms Russia's Altai Region at 'BB+'; Outlook Stable
December 9, 2016 / 5:09 PM / a year ago

Fitch Affirms Russia's Altai Region at 'BB+'; Outlook Stable

(The following statement was released by the rating agency) MOSCOW, December 09 (Fitch) Fitch Ratings has affirmed Russian Altai Region's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+', National Long-Term Rating at 'AA(rus)' and its Short-Term Foreign Currency IDR at 'B'. The Outlooks on the Long-Term IDRs and National Rating are Stable. KEY RATING DRIVERS The 'BB+' ratings reflect the region's stable budgetary performance, satisfactory liquidity and low indebtedness. The ratings also take into account the modest size of the region's economy and weak institutional framework for Russian sub-nationals. Fitch projects Altai will maintain stable budgetary performance, with an operating balance of 7%-9% of operating revenue over the medium term (2015: 7%). The region posted better-than- expected interim fiscal performance with an operating margin of 16% at end-9M16. This was supported by the region's prudent fiscal management aimed at cost control and by stable flows of current transfers and tax revenue. We expect the trend to have extended into 2016 and to carry over through to 2018. The region posted a surplus before debt variation of 6.4% of total revenue as of 1 October 2016 (2015: deficit 2.3%), driven mostly by limited opex, which will be financed later in the year. We project Altai will remain prudent and maintain conservative fiscal practices, leading to a manageable deficit before debt variation not exceeding 5%-7% of total revenue in 2016-2018. The region funded 85% of its capex in 2015 with its current balance and capital revenue. We expect the region's self-financing capacity on capex to remain sound over the medium term. We expect Altai's direct risk to remain low in 2016-2018 (less than 15% of current revenue). Historically the region's debt position has been small, with subsidised federal budget loans being the sole debt instrument since 2007. In the event of debt increase due to the recession in Russia, the region's debt burden will still be low by national and international standards, and remain in line with the 'BB+' ratings. The region's interim direct risk was stable at RUB2.4bn at end-9M16 (RUB2.4bn in 2015). Altai's cash balances improved as cash on accounts increased to RUB6.7bn at end-9M16 from RUB2.1bn in 2015. The region's contingent liabilities are limited to a single outstanding guarantee (for a negligible RUB4.7m at end-9M16) and the low indebtedness of its public-sector companies. In Fitch's view, the administration's oversight of the regional public sector companies is adequate, limiting Altai's exposure to material contingent risk. The region's credit profile remains constrained by the weak institutional framework for Russian local and regional governments (LRGs), which has a shorter record of stable development than many of their international peers. Weak institutions lead to lower predictability of Russian LRGs' budgetary policies, which are subject to continuous reallocation of revenue and expenditure responsibilities within government tiers. Fitch assesses Altai's economy as weak by international standards due to the region's low economic output per capita. Altai's 2014 gross regional product (GRP) per capita was 35% below the national median. This is in part due to concessional taxation on agriculture, which largely relies on in-kind exchanges that are not captured in tax accounts and official statistics. Positively, Altai's economy is fairly diversified with low concentration of tax revenue; the top 10 taxpayers represented 21% of the region's consolidated tax revenue in 2015. According to the region's administration Altai's GRP is likely to expand 1%-3.6% yoy in 2016-2018, due to expected recovery of the national economy and growth in the region's prime sectors. RATING SENSITIVITIES A downgrade could result from significant deterioration in operating performance, coupled with a radical increase in the region's total risk. Positive rating action is unlikely in our base case scenario, given the weak economic environment and dim prospects for a swift recovery in Russia. Contact: Primary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Alexey Kobylyanskiy Analyst +7 495 956 99 80 Committee Chairperson Guido Bach Senior Director +49 69 768 076 111 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Fitch has made a number of adjustments to the official accounts to make LRGs internationally comparable for analytical purposes. These adjustments include: - Transfers of capital nature received were re-classified from operating revenue to capital revenue; - Transfers of capital nature disbursed were re-classified from operating expenditure to capital expenditure. Additional information is available on 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 _id=1016225 Solicitation Status here 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. 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