Moody's takes rating actions on Russian sub-sovereigns.
Moody's Investors Service has today placed the
following ratings on review for downgrade:
(i) the B1 foreign and local-currency issuer and senior unsecured
ratings of the city of Moscow; (ii) the B1 foreign and local-currency
issuer and senior unsecured ratings of the city of St. Petersburg; (iii)
the B2 issuer rating of SUE Vodokanal of St. Petersburg; (iv) the B2
senior unsecured rating of OOO Vodokanal Finance; and (v) the B3 senior
unsecured rating of OJSC "Western High-Speed Diameter". 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 has also affirmed the ratings and maintained the
outlooks on 15 other Russian regional and local governments (RLGs).
At the same time, Moody's has (1) downgraded Belgorod Oblast's issuer and
senior unsecured ratings to Ba2 from Ba1, retaining the negative outlook
on the ratings; (2) affirmed, but changed the outlook on Krasnodar Krai's
Ba1 issuer and senior unsecured ratings to negative from stable. In the
case of Belgorod and Krasnodar, the deterioration of their idiosyncratic
features has driven the actions.
A full list of affected issuers and credit ratings can be found at the
end of this press release.
--RATIONALE FOR REVIEW FOR DOWNGRADE: MOSCOW, ST. PETERSBURG, SUE
VODOKANAL, OOO VODOKANAL FINANCE, OJSC "WESTERN HIGH-SPEED DIAMETER"
The deterioration in Russia's credit profile has direct implications for
the ratings of Moscow and St. Petersburg given their institutional and
macroeconomic linkages with the national government. As Moody's believes
neither city is sufficiently insulated from national market risks and
does not have adequate fiscal autonomy to hold rating exceeding the
sovereign level, the review for downgrade has triggered a similar review
of both cities' issuer and senior unsecured ratings.
The review for downgrade on the B2 issuer rating of SUE Vodokanal of
St. Petersburg, B2 senior unsecured rating of OOO Vodokanal Finance,
and B3 senior unsecured rating of OJSC "Western High-Speed Diameter"
reflects their status as government-related issuers (GRIs), wholly owned
by the St. Petersburg government.
The review for downgrade on OJSC WHSD's bond rating reflects the link
with the city of St. Petersburg and the quality of the guarantee provided
by the Russian government on its bond principal payments. This guarantee
covers overall principal payments (including put options) and principal
--FOCUS OF THE REVIEW
The review will focus on growing systemic risks, as reflected in the
sovereign bond rating. The conclusion of the review will likely follow
the conclusion of the review at the sovereign level.
--RATIONALE FOR AFFIRMATION
Moody's affirmation of the ratings of Moscow Oblast, Bashkortostan,
Tatarstan, Khanty-Mansiysk AO; Samara Oblast; Chuvashia Republic, Komi
Republic, Krasnoyarsk Krai, Nizhniy Novgorod Oblast, Omsk Oblast, Vologda
Oblast, Mordovia Republic, Krasnodar City, Omsk City and Volgograd City
reflects the still sufficient capacity of these sub-sovereigns to
withstand systemic pressures and to maintain standalone creditworthiness
appropriate for their rating categories. The ratings assigned to these
sub-sovereigns are already detached from the sovereign by two to seven
notches, which confers a certain buffer of tolerance in case of a mild
deterioration of the sovereign's creditworthiness.
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 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, 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 Ba2 from Ba1 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 it
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.
The negative outlook on the ratings reflects Moody's expectation of
further growth in Belgorod's debt burden, following its consistently high
financing deficit and below-potential tax revenue.
--RATIONALE FOR NEGATIVE OUTLOOK: KRASNODAR KRAI
Moody's decision to change the outlook to negative from stable reflects
Krasnodar Krai's increasing direct debt and its growing operating
expenditure, which may add to debt pressures in the medium term.
Krasnodar Krai has substantially increased its direct debt over past few
years (76.9% of operating revenue in 2013 from 46.4% in 2012), largely
in preparation for the Winter Olympic Games in Sochi in February 2014.
This debt pressure is partially mitigated by high share of federal
low-interest bearing loans (42% of the regional debt), which are
considered as a part of the sovereign pre-Olympic funding and are largely
due in 2023-32.
The negative outlook reflects Moody's expectation that the regional
government will increase its market borrowings in 2014-15 driven by (i)
the need to increase mandatory salaries in education and healthcare; and
(ii) likely growth in maintenance costs for new post-Olympic facilities.
WHAT COULD CHANGE THE RATINGS UP/DOWN
--RATINGS UNDER REVIEW
Should the sovereign credit quality deteriorate further, these
sub-sovereign ratings will appropriately follow a sovereign rating
action. In turn, if systemic pressures abate, review on these
sub-sovereign ratings will likely lead to their maintaining at current
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 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 outlook.
Should Krasnodar Krai's market debt grow to 55% of operating revenue,
which is largely appropriate for Ba2-rated regions, we will consider
At the same time, should the region prove capable of containing its
public debt at the current levels relative to its operating revenues,
this may be considered as a factor supportive of stabilizing the rating
Moscow, City of: issuer and debt ratings of B1 placed on review for
Petersburg, City of: issuer and debt ratings of B1 placed on review for
SUE Vodokanal of St. Petersburg: issuer rating of B2 placed on review
OOO Vodokanal Finance: debt rating of B2 placed on review for downgrade.
OJSC Western High-Speed Diameter: debt rating of B3 placed on review
Belgorod, Oblast of: issuer and debt ratings downgraded to Ba2, with
negative outlook, from Ba1.
Krasnodar, Krai of: issuer and debt ratings of Ba1 affirmed, outlook
changed to negative from stable.
Bashkortostan, Republic of: issuer rating of B3 affirmed, outlook
Tatarstan, Republic of: issuer rating of B3 affirmed, outlook stable.
Khanty-Mansiysk AO: issuer rating of B3 affirmed, outlook stable.
Samara, Oblast of: issuer rating of Ba1 affirmed, outlook stable.
Chuvashia, Republic of: issuer and debt ratings of Ba2 affirmed, outlook
Komi, Republic of: issuer and debt ratings of Ba2 affirmed, outlook
Krasnoyarsk, Krai of: issuer rating of Ba2 affirmed, outlook stable.
Moscow, Oblast of: issuer rating of Ba2 affirmed, outlook stable.
Nizhniy Novgorod, Oblast: issuer rating of Ba2 affirmed, outlook stable.
Omsk, Oblast of: issuer rating of Ba2 affirmed, outlook stable.
Vologda, Oblast of: issuer rating of Ba3 affirmed, outlook negative.
Mordovia, Republic of: issuer and debt ratings of B1 affirmed, outlook
Krasnodar, City of: issuer rating of Ba2 affirmed, outlook stable.
Omsk, City of: issuer rating of Ba3 affirmed, outlook stable.
Volgograd, City of: issuer rating of Ba3 affirmed, outlook stable.
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
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|Publication:||EMBIN (Emerging Markets Business Information News)|
|Date:||Apr 3, 2014|
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