MOSCOW (Standard & Poor's) Nov. 10, 2008--Standard & Poor's Ratings Services said today that it had assigned its 'B' long-term issuer and 'ruA' Russia national scale ratings to Novgorod Oblast, one of 83 regions in the Russian Federation (foreign currency BBB+/Negative/A-2; local currency A-/Negative/A-2; Russia national scale 'ruAAA').
"The ratings reflect the oblast's concentrated economic base and lower wealth levels than the Russian average, weak budgetary performance on average, and an expected substantial increase in tax-supported debt," said Standard & Poor's credit analyst Felix Ejgel.
Novgorod Oblast's low direct debt service and the commitment of oblast's new management to fostering long-term economic development and timely debt repayment support the ratings.
The oblast's wealth levels are lower than the national average. Moderate annual economic growth of about 5% in 2003-2007 could slow to 2.0%-2.5% in 2009-2010 due to the ongoing credit crisis. The oblast's largest enterprise, JSC Acron is responsible for 20% of the oblast's industrial output.
As a result of the concentration of its economic base, the oblast's budgetary performance remains unstable. Due to one-time payments from Acron, the operating balance should improve to 7% before it declines to a mere 1% on average in 2009-2010.
The oblast's new management team is timely servicing debt obligations in full. Direct debt should remain at about a modest 16% of operating revenues in 2008-2009, while debt service will account for 3% of total revenues. Tax-supported debt is set to increase substantially, however, to about 50% of total revenues in 2009 after the oblast issues new guarantees to the private sector. The oblast had accumulated Russian ruble (RUR) 2.1 billion ($77.7 million) of cash on accounts as of Sept. 30, 2008.
"The stable outlook reflects our expectation that the efforts taken by the oblast government to attract private and federal budget investment in local infrastructure will lead to moderate economic growth in 2010 and help the region stabilize its budgetary performance at modest levels. The outlook also factors in our assumption that the oblast guarantees are to be granted only to long-term amortizing loans.
"We could revise the outlook on Novgorod Oblast to positive should the nonchemical sectors of the local economy grow faster than projected, thanks to solid private and public investments stimulating revenue growth, which would allow for higher infrastructure-related spending and only modest recourse to debt," said Mr. Ejgel |
