Moody's Interfax takes rating actions on Russian sub-sovereigns.
Moody's Interfax Rating Agency has today affirmed the national scale ratings of 16 Russian regions and
municipalities, and one government-related issuer. These rating actions
follow Moody's placement of Russia's B1 government bond rating on
review for downgrade on 28 March 2014. For additional information, please
refer to the related announcement:
Concurrently, Moody's Interfax has downgraded Belgorod Oblast's issuer
and senior unsecured national scale ratings to 2.ru from 1.ru. The
downgrade was driven by the oblast's deteriorating financial metrics and
its failure to deliver on its budget consolidation plan for 2013.
A full list of affected issuers and credit ratings can be found at the
end of this press release.
Please see ratings tab on the issuer/entity page on moodys.com for
information on Global Scale Rating.
--RATIONALE FOR AFFIRMATION
Moody's has affirmed the national scale ratings of Moscow city, St.
Petersburg city, SUE Vodokanal of St. Petersburg, Moscow Oblast,
Khanty-Mansiysk AO, Samara Oblast, Chuvashia Republic, Komi Republic,
Krasnodar Krai, Krasnoyarsk Krai, Nizhniy Novgorod Oblast, Omsk Oblast,
Vologda Oblast, Mordovia Republic, Krasnodar City, Omsk City and
Volgograd City. The rating action reflects the still-sufficient capacity
of these sub-sovereigns to withstand systemic pressures and to maintain
standalone creditworthiness appropriate for their rating categories.
Moody's notes that these regions demonstrate adequate capacity to manage
short-term refinancing risks, both thanks to the national government's
liquidity access mechanism for regional and local governments (RLGs) --
which helps to offset immediate liquidity pressures -- and ongoing
lending from state-owned banks. Their debt structure, which is absent of
foreign-currency risk (with the exception of Moscow city), and growing
maturities of their local-currency borrowing also help to mitigate
refinancing risks. Finally, the abovementioned Russian sub-sovereigns
have better resilience to global energy price volatility compared with
the Russian government, given their more limited budget dependence on
volatile taxes from the oil and gas sector.
--RATIONALE FOR DOWNGRADE: BELGOROD OBLAST
Moody's decision to downgrade Belgorod Oblast's issuer and debt ratings
to 2.ru from 1.ru reflects the region's rapidly deteriorating
financial metrics and its failure to deliver on its budget consolidation
plan for 2013. The region recorded a -12.6% financing deficit in 2013,
while its debt grew to 71.9% of operating revenue from 57.4% in 2012.
Moody's notes that this has been driven by the substantial progressive
decline in the oblast's corporate income tax proceeds, which followed
the recent departure of a large regional corporate taxpayer (due to
changes in the national corporate income tax regime), and the pressure
weak steel and iron ore prices put on the financials of other key
regional taxpayers from the industry.
WHAT COULD CHANGE THE RATINGS UP/DOWN
For all affirmed ratings, downward pressure may arise from the rapid
deterioration in their financial metrics, leading to increasing
idiosyncratic risks. Further material growth in systemic risk, as
reflected in a weakening sovereign credit profile, may also adversely
impact these sub-sovereign ratings.
In turn, upward pressure for non a.ru issuers will be determined by
improving individual financial profiles of the abovementioned
sub-sovereigns, such as significant debt reduction and/or structurally
balanced budgets and improving liquidity position.
Should Belgorod Oblast fail to contain its financing deficit, which will
lead to further growth in its net direct and indirect debt ratio towards
80% of operating revenue, Moody's would consider downgrading the rating.
Should the region prove capable of decreasing its debt exposure and
containing financing deficits at low single-digit levels, Moody's would
consider stabilising the rating.
Moscow, City of: issuer rating of a.ru affirmed.
Petersburg, City of: issuer and debt ratings of a.ru affirmed.
SUE Vodokanal of St. Petersburg: issuer rating of a.ru affirmed.
Belgorod, Oblast of: issuer and debt ratings downgraded to 2.ru from
Krasnodar, Krai of: issuer and debt ratings of 1.ru affirmed.
Khanty-Mansiysk AO: issuer rating of a.ru affirmed.
Samara, Oblast of: issuer and debt ratings of 1.ru affirmed.
Chuvashia, Republic of: issuer and debt ratings of 2.ru affirmed.
Komi, Republic of: issuer and debt ratings of 2.ru affirmed.
Krasnoyarsk, Krai of: issuer rating of 2.ru affirmed.
Moscow, Oblast of: issuer rating of 2.ru affirmed.
Nizhniy Novgorod, Oblast: issuer rating of 2.ru affirmed.
Omsk, Oblast of: issuer rating of 2.ru affirmed.
Vologda, Oblast of: issuer rating of 3.ru affirmed.
Mordovia, Republic of: issuer and debt ratings of A1.ru affirmed.
Krasnodar, City of: issuer rating of 2.ru affirmed.
Omsk, City of: issuer rating of 3.ru affirmed.
Volgograd, City of: issuer rating of 3.ru affirmed.
The sovereign action required the publication of this credit rating action
on a date that deviates from the previously scheduled release
date in the sovereign release calendar, published on www.moodys.com.
Specific economic indicators as required by EU regulation are not
applicable for these entities.
On 27 March 2014, a rating committee was called to discuss the ratings of
Russian sub-sovereign entities. The main points raised during the
discussion were: The systemic risk in which the issuers operate has
The principal methodology used in rating Russia RLGs was Regional and
Local Governments published in January 2013. The principal methodology
used in rating Russia GRIs was Government-Related Issuers: Methodology
Update published in July 2010. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies
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|Publication:||EMBIN (Emerging Markets Business Information News)|
|Date:||Apr 3, 2014|
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