Fitch Affirms City of Krasnoyarsk at 'BB'; Outlook Stable
October 5, 2011 Fitch Ratings
Fitch Ratings-London/Moscow-04 October 2011: Fitch Ratings has affirmed the Russian City of Krasnoyarsk's Long-term foreign and local currency ratings at 'BB', Short-term foreign currency rating at 'B' and National Long-term rating at 'AA-(rus)'. The Outlooks for the Long-term ratings are Stable.
The affirmation reflects the city's strong local economy, sound budgetary performance, relatively high capital expenditure and potential financial support from Krasnoyarsk Region ('BB+'/Stable/'B'). However, they also factor in the volatile budgetary performance and a short-term direct risk profile.
Fitch notes that maintenance of moderate direct risk at about 20% of current revenue and debt coverage (direct risk/operating revenue) ratio below two years, coupled with consolidation of budgetary performance with margins above 13% in the medium term and easing of refinancing pressure, would be positive for the ratings. Conversely, significant deterioration of budgetary performance due to an inability to control operating expenditure, along with an increasing refinancing pressure due to short-term debt profile would be negative for the ratings.
Fitch expects Krasnoyarsk's budgetary performance to moderately improve, however it will not reach the high pre-crisis margins. The operating margin is likely to account for 13% of operating revenue in 2011 compared to average 24% in 2007-2008. The agency also expects further improvement in 2012-2013, with the operating margin reaching 14%-15% due to the expansion of the tax base and the administration's strong motivation to curb the growth of operating expenditure.
The agency expects the city's direct risk to be about RUB4.8bn by end-2011, which corresponds to a moderate 21% of current revenue. Fitch expects the absolute amount of debt will stabilise at this level in 2012-2013, and the relative debt burden will gradually decline below 20% of current revenue. Debt coverage will remain strong and will be below two years in 2011-2013.
Despite the moderate debt burden, the city's direct risk has a relatively short-term maturity profile. This dominated by bank loans and loans from the Krasnoyarsk region's budget with maturity between one to three years. About 83% of the city's liabilities expire in 2011-2012, which lead to refinancing pressure on the city's budget. However, the city has unused contracted credit lines totalling RUB3.1bn at Sberbank ('BBB'/Stable/'F3') and Bank VTB ('BBB'/Stable/'F3') as of 26 September 2011. Those credit lines exceed the short-term liabilities of the city and mitigate the refinancing risk.
The city's economy has a strong industrial sector dominated by metallurgy and machine-building. This gives it a strong tax base, but also exposes it to volatile business cycles in non-ferrous metallurgy.
With a population of 979,625 inhabitants as of 1 January 2011, the city is the capital of Krasnoyarsk Region, which is one of the top 10 Russian regions by gross regional product and the second-largest Russian region by area.
Company — Krasnoyarsk
Full nameKrasnoyarsk city