Fitch Rates City of Astrakhan 'B+'; Outlook Stable
December 17, 2010 Fitch Ratings
Fitch Ratings-London/Warsaw/Moscow-17 December 2010: Fitch Ratings has assigned the Russian City of Astrakhan Long-term foreign and local currency ratings of 'B+', a Short-term foreign currency rating of 'B' and a National Long-term rating of 'A(rus)'. The Outlooks for the Long-term ratings are Stable.
The ratings factor in the city's relatively high direct risk with short-term maturity and its low self-financing capacity of capital expenditure. The ratings also consider Astrakhan's diversified economy, satisfactory budgetary performance and low contingent risk stemming from its broad public sector.
Fitch notes that the improvement of budgetary performance with sustainable operating margin at about 10%, coupled with a lengthening of the debt maturity profile significantly beyond a 12-month horizon leading to reduced refinancing risk would be rating positive. Conversely, failure to improve the direct risk payback ratio and non-extension of the debt maturity profile would lead to downward rating pressure.
Astrakhan's budgetary performance was satisfactory in 2006-2009 with an operating margin of 5.8% by end-2009 (2008: 8.7%). The city's self-financing capacity on capex is constrained by the relatively low current balance, which covered only 3.2% of capital outlays in 2009 (2008: 6.0%). However, capital transfers from the region, relating to the 450th anniversary of Astrakhan Region, allowed the city to maintain a high level of capex, which averaged at 50.9% of its total spending in 2007-2008 (2009: 32.6%). Fitch expects Astrakhan to improve its operating margin to about 7%-8% level by end-2010 and 10%-12% in the medium term, which would lead to a gradual improvement of the city's capex self-financing capacity.
The city's direct risk increased to RUB1.4bn in 2009 (2005: RUB800m) as Astrakhan co-financed development projects in 2007-2009. An overall increase in direct risk up to RUB1.8bn is expected by end-2010. Bank loans with 12 months to maturity comprised 93% of the city's direct risk in 2009, exposing Astrakhan to significant refinancing risk. Immediate refinancing needs by end-2010 are fully covered by outstanding liquidity, while the city will need to refinance RUB950m worth of loans maturing by H111. The city's exposure to contingent risk, stemming from minor debt of public sector entities, is very low.
The city's economy is well-diversified and benefits from its capital status of Astrakhan Region and concentration of businesses. The City of Astrakhan is located in the south of the central part of Russia, in the upper mouth of the Volga River. The city's population of 0.5 million accounted for 50% of the region's population and 0.4% of Russia's total population.
Company — Astrakhan