(The following statement was released by the rating agency)
Nov 30 - Fitch Ratings has assigned Russia's Chelyabinsk Region Long-term foreign and local currency ratings of 'BB+', a Short-term foreign currency rating of 'B', and a National Long-term rating of 'AA(rus)'. The Outlooks for the Long-term ratings are Positive. The agency also assigned Long-term foreign and local currency ratings of 'BB+(exp)' and a National Long-term rating of 'AA(rus)(exp)' to OJSC Southern Urals Civil Construction and Mortgage Corporation's expected RUB2.5bn domestic bond issue, which is guaranteed by the region.
The ratings and Positive Outlooks reflect the region's strong economy, sound budgetary performance and very low indebtedness. However, the ratings also take into account the concentration of the region's tax base and expected growth of contingent liabilities.
Fitch notes that the maintenance of total indebtedness at below 20% of current revenue coupled with a sound budgetary performance that maintains debt serving ratios in line with Fitch's expectations over two consecutive years would lead to an upgrade.
The agency expects the Chelyabinsk region to demonstrate a sound budgetary performance in 2012-2014 with margins at above 10% (2011: 9.1%) and a minor surplus before debt variation by 2014. A sharp deterioration in the prices of metals and related products on international markets would lead to the stagnation of the region's tax revenue. However, Fitch expects that in this scenario the region will cut capex and will not sharply increase its direct risk stock.
At 1 October 2012 the region's direct risk amounted to RUB3bn or less than 5% of projected current revenue. Fitch expects the region's direct risk to increase to about RUB6bn by end-2012. In relative terms direct risk will remain very low at about 7% of current revenue in 2012-2014. Debt coverage ratio (direct risk / current balance) will remain strong at below one year.
Fitch expects the growth of indirect risk in the form of guarantees issued by Chelyabinsk region to be above RUB11bn in 2012-2014. Nonetheless net overall risk will be low at below 15% of current revenue. The total amount of outstanding guarantees issued by the region increased to RUB6.7bn in 2011 (2009: RUB0.1bn). The amount will further grow and exceed RUB11bn by end-2012 due to the guarantees issued in support of OJSC Southern Urals Civil Construction and Mortgage Corporation.
Despite increased capex in 2011 at 22% of total expenditure, the region sustained a sound self-financing capacity. The region's current balance and capital revenue covered about 70% of capex. Fitch expects the region to further improve its self-financing capacity in the medium term as capex will fall to less than 20% of total expenditure, but in absolute terms will remain high at about RUB20bn per annum.
Chelyabinsk region's has a strong industrial economy, supporting wealth indicators above the national median. The region is home to well-developed metallurgical and machine-building industries. However economic growth in the region is slowing down as it suffered a 14.5% yoy dip in crisis-hit 2009. Fitch expects the local economy to grow at less than 3% yoy in 2012-2014. The region's tax revenue is moderately concentrated as the 10 largest taxpayers accounted for about 30% of proceeds in 2010-2011.
Chelyabinsk region is located in the South Urals region of Russia on the notional boundary of Europe and Asia. The region accounted for 1.7% of national GDP in 2010 and for 2.4% of the population.
(Bangalore Ratings Team, Hotline: +91 80 4135 5898 firstname.lastname@example.org,Group id:BangaloreRatings@thomsonreuters.com,Reuters Messaging: email@example.com)
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