Reuters logo
Fitch Affirms Russia's Tula Region at 'BB'; Outlook Stable
March 10, 2017 / 5:09 PM / 9 months ago

Fitch Affirms Russia's Tula Region at 'BB'; Outlook Stable

(The following statement was released by the rating agency) MOSCOW, March 10 (Fitch) Fitch Ratings has affirmed the Russian Tula Region's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' with Stable Outlooks and Short-Term Foreign Currency IDR at 'B'. The region's National Long-Term Rating has been affirmed at 'AA-(rus)' with a Stable Outlook and withdrawn. The region's senior debt long-term rating has been affirmed at 'BB'. The region's senior debt National long-term rating has been affirmed at 'AA-(rus)' and withdrawn. The affirmation reflects Fitch's base case scenario regarding Tula Region's stable budgetary performance and moderate direct risk over the medium term. The National-scale rating is being withdrawn because Fitch has withdrawn its Russian National-scale ratings in response to a new regulatory framework for credit rating agencies in Russia (see "Fitch Withdraws National Scale Ratings in the Russian Federation" dated 23 December 2016). KEY RATING DRIVERS The 'BB' ratings reflect the satisfactory operating balance of Tula, which comfortably covers its interest payments, its smaller deficit before debt and moderate direct risk. The ratings also factor in the region's moderate social-economic profile and a weak institutional framework for Russian sub-nationals. Fitch projects Tula's operating balance to consolidate at about 8% of operating revenue over the medium term, which is below the 10.9% recorded in 2016, but still sufficient to cover interest payments by 4x-5x (2016: 7.7x). In 2016, the operating balance was supported by a 9.2% growth in tax revenue. The latter will likely decelerate in 2017, in Fitch's view, due to revised allocation of excise duty and corporate income tax proceeds although this will be partly offset by higher transfers from the federal government. We expect Tula will likely post a deficit before debt in 2017-2019, which we project at 3%-4% of total revenue. The region recorded a small surplus in 2016 after four years of deficits. The improvement was driven by a higher operating margin, reduced interest payments and the repayment of RUB1 billion budget loans by municipalities (mostly the City of Tula (BB-/Stable)). Nevertheless, the region's fiscal flexibility remains low, in Fitch's view. Most of its operating expenditure is social-oriented and quite rigid, while capex is already reduced to low levels (2016: 13% of total expenditure). Fitch forecasts Tula's direct risk to remain moderate at below 35% of current revenue in 2017-2019 (2016: 25.4%). In 2016, direct risk stabilised at RUB15.7 billion, after the region refinanced about RUB5 billion bank loans with federal budget loans. As a result, Tula's debt portfolio is dominated by budget loans (59%), followed by bonds (38%) and bank loans (3%). The budget loans have low 0.1% interest rates, which should help the region to save on interest payments over the medium term. Despite the moderate debt burden, the region is exposed to refinancing risk as its debt maturity is short in the international context. In 2017, Tula needs to refinance RUB5.5 billion, or 35% of direct risk, which it will fund using bank loans and budget loans; the federal government has approved a RUB1.2 billion budget loan for Tula in 2017. Additional intra-year funding support comes from RUB4 billion short-term treasury loans, allowing Tula to defer more costly bank borrowings to year-end. The region's economy is moderate in the national context with GRP per capita slightly below the national median. However, it benefits from a well-diversified processing industry and grows faster than the national average. According to the region's estimation, Tula's GRP grew 4.8% yoy in 2015 and 2.5% in 2016, while Russia's GDP contracted. The administration expects growth to continue at 2.5%-3% p.a. in 2017-2018, supported by processing industries and a national economic recovery, which Fitch forecasts at 1.3%-2% for 2017-2018. The region's credit profile remains constrained by the weak institutional framework for Russian local and regional government (LRGs). It has a short track record of stable development compared with many of its international peers. The frequent reallocation of revenue and expenditure responsibilities within tiers of government reduces the predictability of LRGs' budgetary policies and hampers Tula's forecasting ability. RATING SENSITIVITIES Sound budgetary performance with an operating margin above 10% on a sustained basis, accompanied by moderate direct risk below 40% of current revenue, would lead to an upgrade. Conversely, deteriorated budgetary performance with an operating margin consistently below 5%, accompanied by a weak debt payback exceeding 10 years (2016: 2.7years), could lead to a downgrade. Contact: Primary Analyst Elena Ozhegova Director +7 495 956 24 06 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 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. Fitch has made a number of adjustments to the official accounts in order to make the LRG comparable internationally for analysis purposes. For Tula 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. 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 National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020400 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. 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 © 2016 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

Our Standards:The Thomson Reuters Trust Principles.
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