MOSCOW (Standard & Poor's) Nov. 24, 2008--Standard & Poor's Ratings Services said today that it had raised the long-term issuer and Russia national scale ratings on Leningrad Oblast to 'BB/ruAA' from 'BB-/ruAA-'. The outlook is stable.
"The upgrade reflects the oblast's solid economic and revenue base, large liquidity, and low debt," said Standard & Poor's credit analyst Irina Pilman.
Leningrad Oblast, located in the northwest of The Russian Federation (foreign currency BBB+/Negative/A-2, local currency A-/Negative/A-2, Russia national scale 'ruAAA'), suffers from low financial flexibility and predictability in the context of the Russian intergovernmental and tax systems. Moderate economic concentration and continuous expenditure pressures further constrain the ratings.
However, the oblast enjoys a solid and buoyant economic environment in its location surrounding the City of St. Petersburg (BBB/Stable/--); a low debt burden; solid reserves that exceed short-term borrowing needs; and sound budgetary performance.
Thanks to its favorable location surrounding St Petersburg, however, and continuous inflows of investments in energy generation, manufacturing, transport, and communication, the oblast benefits from a solid, diversifying, and rapidly growing economy. Investment comprised about 40% of the gross regional product, which grew at more than 9% on average over the past five years.
We expect economic growth to cool slightly over the next two years, however, because the progress of any new projects hangs on the evolution of the financial markets.
The economic slowdown may cause tax revenue growth to decline somewhat, especially in 2009. However, we expect the oblast administration to be able to contain expenditure growth so that, ultimately, operating balances decline only moderately to a 6.5% annual average over 2009-2011.
We expect the oblast's year-end 2008 cash reserves to be sufficient to finance its capital needs over the next few years, with only marginal recourse to borrowing. The oblast's free cash as of Oct. 1, 2008, was 1.6x the average monthly operating expenditures expected in 2008. The bulk of the oblast's liquidity reserves (RUR5.7 billion or 82% of free cash) was on deposit in several local banks.
The stable outlook reflects our expectation that Leningrad Oblast's revenues will continue to benefit from a solid economic base and that the administration will manage to stabilize the operating performance at an annual average of 6.5% of operating revenues, while financing its investment program without materially increasing its debt burden over 2009-2011.
"Future positive rating actions will depend on the oblast strengthening its budgetary performance and reserves above our expectations," said Ms. Pilman. |
