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Fitch affirms ratings in Tyumen region at BBB level, forecast is "Stable"

 

Fitch Ratings-Moscow/London-19 may 2017, Fitch Ratings affirmed the long-term Issuer default rating ("IDR") in Tyumen region of the Russian Federation in foreign and national currency at level "BBB-" with Stable forecast  and short-term IDR in foreign currency "F3".

The affirmation reflects of Tyumen region unchanged baseline scenario of the agency in respect of strong budget performance of the region, a good cash position and virtually zero direct risk (direct debt and other debts according to the classification of Fitch).

According to experts, region's ratings are constrained by ratings of the Russian Federation ("BBB-"/forecast "Stable"). The ratings reflect, on the one hand, the lack of the Tyumen region debt, strong liquidity and, as a consequence, a positive net cash position, supported by good budgetary performance, and, on the other hand, take into account the high dependence of the region from tax revenues from the oil and gas sector, and a weak institutional environment for Russian sub-national entities.

Fitch forecasts that Tyumen region will maintain strong operating margins at 20%-23% in the medium term because of tax revenues from export-oriented oil and gas sector, which is dominant by the taxpayer in the region. Taxes historically represent about 90% of operating revenues, indicating a strong fiscal capacity.

Concentration risk is mitigated by a conservative financial policy in the region, considerable reserve of liquidity and strong budgetary flexibility. High ability for self-financed by the current balance and capital revenue (2016: 134%), which comfortably cover the major part of capital expenditure, allowing the region to maintain a low level of direct risk.

According to the agency, the creditworthiness of the region is constrained by the weak institutional environment for local and regional authorities in Russia. This medium has a shorter history of stable development than many comparable international issuers. Frequent reallocation of revenue and expenditure powers between the budgets of different levels affects the predictability of the budget policy of the Russian local and regional authorities.

FACTORS THAT MAY AFFECT FUTURE RATINGS

Ratings of Tyumen region are constrained by the sovereign ratings. A positive change in the sovereign ratings will lead to a similar rating action on the ratings of the region while maintaining credit metrics. Improving the economic diversification of the region will be positive for its creditworthiness.

The downgrade is unlikely due to the strong profile of the region, barring the lowering of the sovereign rating. Thus steady deterioration of fiscal indicators significantly weaker debt ratios could lead to negative rating action.

Additional information is available on the websites www.fitchratings.com.




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