Russian Stavropol Krai 'B+' And 'ruA+' Ratings Affirmed; Outlook Stable
November 8, 2012 Standard & Poor's
• We expect the budgetary performance of the Russian LRG Stavropol Krai to be weaker in 2012-2014 than in our previous forecast due to rapid operating spending growth.
• Nevertheless, the management's intention to achieve a balanced budget and to gradually improve the debt maturity profile should help improve the krai's currently negative liquidity position in the next three years.
• We are affirming our 'B+' rating and 'ruA+' Russia national scale rating on the krai.
• The stable outlook reflects our view that in 2013-2014 Stavropol Krai will continue to be exposed to refinancing because of a modest accumulation of direct debt, but that its current liquidity position will not deteriorate, thanks to a gradual shift to medium-term borrowings and improvement of the debt maturity profile.
MOSCOW (Standard & Poor's) Nov. 8, 2012--Standard & Poor's Ratings Services said today that it had affirmed its 'B+' long-term issuer credit and 'ruA+' Russia national sale ratings on Stavropol Krai, located in the Russian Federation (foreign currency BBB/Stable/A-2; local currency BBB+/Stable/A-2; Russia national scale 'ruAAA'). The outlook is stable.
The ratings on Stavropol Krai reflect our view of its low financial flexibility and predictability because of its reliance on federal decisions and uncertainties related to intergovernmental fiscal relations, as well as the lack of reliable medium-term financial planning. The ratings are also constrained by the krai's weak liquidity owing to relatively high refinancing needs.
The ratings are supported by the krai's modest contingent liabilities and our expectation that the gradually growing debt burden will remain low over the next three years.
The stable outlook reflects our view that, in 2013-2014, Stavropol Krai will continue to be exposed to refinancing due to modest accumulation of direct debt, but the its current liquidity position will not deteriorate thanks to a gradual shift to medium-term borrowings and improvement of the debt maturity profile. Our base-case scenario also assumes that the efforts of the krai's new management to limit expenditure growth rates will lead to an improvement in the currently weak budgetary performance over the medium term.
Negative rating actions could follow in the next 12 months if increased exposure to short-term debt with debt service reaching 15% of operating revenues or cash depletion lead to a very negative liquidity position in line with our downside scenario. The management's inability to constrain expenditure growth could also pressure the ratings if it led to higher borrowing needs compared with our base-case scenario.
We would consider a positive rating action if additional tax revenues and tight fiscal discipline lead to a structural improvement of the krai's budgetary performance and strengthening of liquidity position compared with our base-case scenario. Decreased refinancing risks thanks to extension of debt maturities and lower borrowing needs would also be positive for the ratings. However, we view positive rating actions in the next 12 months as unlikely.
Company — Stavropol region
Full nameFinance Ministry of Stavropol region