(The following statement was released by the rating agency)
MOSCOW/LONDON, October 28 (Fitch) Fitch Ratings has affirmed Russian Lipetsk
Region's Long-term foreign and local currency ratings at 'BB', with Stable
Outlooks, and its Short-term foreign currency rating at 'B'. The agency has also
affirmed the region's National Long-term rating at 'AA-(rus)' with Stable
The rating action also affects Lipetsk Region's senior unsecured domestic bonds
with outstanding amount of RUB5bn (ISINs RU000A0JS8T1, RU000A0JTVZ8).
KEY RATING DRIVERS
The affirmation reflects Lipetsk's satisfactory operating performance, moderate,
albeit increasing, direct risk and prudent financial management. The ratings
also factor in the high concentration of the local economy and continuous
pressure on operating expenditure.
Fitch forecasts further growth of direct risk in 2013 due to the need to finance
an expenditure-driven deficit. Direct risk will, however, remain moderate, at
around 40% of current revenue in 2013 (2012: 30.5%). For 2014-2015 Fitch expects
the growth in debt to decelerate as the region's deficit narrows. Last year the
region improved the maturity profile of its direct risk by replacing short-term
bank loans with either new bank loans with longer maturity or bond issues.
The region will have to repay only a RUB0.5bn bank loan for 2013. This amount is
fully covered by a RUB1.3bn committed credit line. However, the region's
refinancing pressure for 2014-2015 is high with around RUB8bn of maturing debt
obligations, accounting for 61% of direct risk. The administration plans to
replace them with domestic bonds, in light of its successful placement of a
seven-year domestic bond in April 2013. This will help to even out its direct
risk maturity profile to 2032.
Fitch expects the region's operating performance to remain firm with an
operating balance averaging 6% of operating revenue per year from 2013 to 2015.
This would, however, be lower from the 8.5% recorded in 2012, and is explained
by continuous pressure on operating expenditure. Fitch expects the region's
deficit before debt variation will narrow gradually to 3% of total revenue in
2015 from 7% in 2012 due to capex reduction.
The regional economy grew 6.9% yoy in 2012, far outpacing national growth of
3.4%. The regional economy is strong but concentrated due to the presence of one
of the largest metallurgic plants in Russia OJSK Novolipetsk Steel
(BBB-/Negative/F3). Ferrous metallurgy contributed 58% of the region's
industrial output in 2012, making it vulnerable to fluctuations in the domestic
and international steel markets.
It is the administration's strategic objective to diversify the local economy by
developing a network of special economic zones. The administration's prudent
approach to debt policy has resulted in overall moderate indebtedness and an
improvement of its direct risk maturity profile. Fitch believes the
administration will continue to follow this approach in the medium-term.
A decline in the operating balance to below 5% of operating revenue for two
consecutive years and higher refinancing pressure will lead to a downgrade.
Conversely, an operating balance above 10% of operating revenue for two
consecutive years and debt coverage (direct risk to current balance) that is in
line with average debt maturity would lead to a positive rating action.
- Russia has an evolving institutional framework with the system of
intergovernmental relations between federal, regional and local governments
still under development. However, Fitch expects Lipetsk Region will continue to
receive a steady flow of transfers from the federation.
- Russia's economy will continue to demonstrate modest economic growth. Fitch
does not expect dramatic external macroeconomic shocks.
- The federal government's budgetary performance will remain sound and will
serve as a supporting factor for Lipetsk Region.
- Lipetsk Region will continue to have fair access to domestic financial markets
sufficient for refinancing its maturing debt.
+7 495 956 99 65
Fitch Ratings CIS Ltd
26 Valovaya Street
+7 495 956 70 64
+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 at www.fitchratings.com.
Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and
'International Local and Regional Governments Rating Criteria outside United
States', dated 9 April 2013, are available on www.fitchratings.com.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria
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