Standard & Poor's: Russian City of Ufa Affirmed At 'BB-/ruAA-' On Expected Moderate Budgetary Performance, Neutral Liquidity
May 22, 2012 Standard & Poor's
MOSCOW (Standard & Poor's) May 22, 2012--Standard & Poor's Ratings Services said today that it had affirmed its long-term issuer credit rating on Russia's City of Ufa at 'BB-' and its Russia national scale rating on the city at 'ruAA-'. The outlook is positive.
The 'BB-/ruAA-' ratings on Ufa's senior unsecured debt were affirmed and the '3' recovery rating, indicating our expectation of "meaningful" (50%-70%) recovery in the event of a payment default, is unchanged.
The affirmation reflects our expectation that higher capital grants might alleviate Ufa's expenditure pressure and result in improving budgetary performance and only modest debt accumulation in the medium term.
Ufa is the administrative center of the Republic of Bashkortostan (BB+/Positive/--) in the Volga Federal District of the Russian Federation (foreign currency, BBB/Stable/A-3; local currency, BBB+/Stable/A-2; Russia national scale, 'ruAAA').
The ratings on Ufa reflect Standard & Poor's view of Ufa's limited budgetary flexibility, owing to its dependence on federal and regional authorities' decisions; modest wealth levels; and high capital-expenditure requirements. However, we assume Ufa's debt burden will remain modest in the medium term and that, if necessary, the city will likely receive additional financial support from Bashkortostan.
The positive outlook reflects our view that expected higher capital grants will partly alleviate Ufa's expenditure pressure and might result in improving budgetary performance and only limited borrowing needs in the medium term.
We could raise the ratings within the next 12 months if Ufa structurally improves its liquidity position by achieving a more gradual debt repayment schedule, organizing committed bank lines, or by accumulating cash reserves thanks to prudent control over spending growth in line with our upside scenario.
We could revise the outlook to stable within the next 12 months if the city's budgetary performance remains moderate with operating margins not exceeding 5% of operating revenues and liquidity position remains neutral in line with our base-case scenario.
Company — Ufa
Full nameUfa (Bashkortostan republic)