Fitch Rates City of Krasnoyarsk 'BB'; Outlook Stable
October 5, 2010 Fitch Ratings
Fitch Ratings-London/Moscow-05 October 2010: Fitch Ratings has assigned the Russian City of Krasnoyarsk's 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 Stable.
The ratings reflect the strong economy of Krasnoyarsk, its sound budgetary performance, relatively high capital expenditure and potential financial support from the Krasnoyarsk region ('BB+'/Stable). However, they also factor in the temporary deterioration in budgetary performance in 2009 and short-term direct risk. Continuous deterioration in budgetary performance and/or a significant weakening of debt coverage would be negative for the ratings. On the other hand, stabilization of budgetary performance at operating margins above 15%, coupled with manageable debt levels, would be positive for the ratings.
Krasnoyarsk recorded sound, albeit volatile, budgetary performance with operating margin averaging 17.8% in 2005-2008. Declining tax revenue in 2009, due to a weaker economy, caused the operating balance to shrink to RUB1.7bn from RUB3.8bn a year earlier. However, the city still recorded a robust 9.2% operating margin in 2009. Fitch expects the city to restore its operating margin to 13%-14% in 2010 and further improve it to 15% over the 2011-2012 as the economy improves.
The city recorded high capital expenditure in 2007-2008, which was partially funded by capital transfers from the regional budget. This helped to mitigate the negative revenue shock of 2009, although the city's capex cut by 35% during the same period helped contain further debt increase. Nevertheless, capex accounted for a still high 23.8% of total expenditure in 2009. Rigid expenditure items (staff costs and social subsidies) totalled 64% of operating expenditure in 2009, which was partly offset by the earmarked grants from the Krasnoyarsk region.
The city's direct risk increased since 2008 but remained manageable at 23% of current revenue at end-2009. The city managed to reduce debt during Q1-Q310 to RUB3.1bn, down from RUB4.1bn at the beginning of 2010. Most of its liabilities consist of budget loans from the Krasnoyarsk region, which bear low interest. The majority of its debt matures within 18 months although the city has a RUB3.6bn unused bank credit line, mitigating refinancing risk. Fitch expects Krasnoyarsk's direct risk to amount to about 25% of current revenue in 2010 and to gradually decline to 22% over the next three years.
Krasnoyarsk is located in eastern Siberia on the Yenisei River. The city is the capital of the of Krasnoyarsk region, one of the top 10 Russian regions by gross regional product and the second-largest Russian region by area. With a population about 964,700 the City of Krasnoyarsk is one of the largest in the eastern part of Russian Federation.
Company — Krasnoyarsk
Full nameKrasnoyarsk city