MOSCOW (Standard & Poor's) Nov. 11, 2009--Standard & Poor's Ratings Services said today that it had revised its outlook on the eastern Siberian region Krasnoyarsk Krai to negative from stable. The 'BB+' long-term issuer credit and 'ruAA+' Russia national scale ratings on Krasnoyarsk Krai were affirmed. At the same time, 'BB+' and 'ruAA+' senior unsecured debt ratings were assigned to the krai's planned three-year amortizing Russian ruble (RUR) 10.2 billion ($340 million) bond, which the region intends to place on Nov. 12, 2009.
The bond will have 12 quarterly, fixed, step-down coupons and an amortizing repayment schedule. In both 2010 and 2011, 30% of the bond is scheduled to be redeemed, and the remaining 40% is set to be redeemed in 2012.
"The outlook revision is because we expect that the krai will suffer a significant deterioration of its budgetary performance and a gradual depletion of its previously ample cash reserves in 2009-2010," said Standard & Poor's credit analyst Felix Ejgel.
The ratings are constrained by revenue volatility--and consequently budgetary performance--stemming from high industrial and taxpayer concentration, additional pressures from costs and infrastructure requirements, and low financial flexibility, which is typical for Russia's regions.
These weaknesses are partly mitigated by the krai's strong debt management and the transparency of its financial policy. Combined with an adequate liquidity position, these factors support the ratings in the short to medium term, while the region's strong economic potential from its natural resources and good energy supply support credit quality over the longer term.
Industry accounts for a high 55% of Krasnoyarsk Krai's gross regional product (2008 forecast) and is dominated by metal production, which has been severely affected by decreased demand and a sharp correction of record high prices.
Following a sharp decline in world metal prices in 2008-beginning of 2009 metal producers' profits dropped, cutting the krai's profit tax by more than 50% in 2009 compared with the amount received in 2007. We believe that operating performance will recover gradually in 2010-2011, thanks to continued efforts by the krai's administration to control expenditures, as well as resumed tax payments from OJSC MMC Norilsk Nickel (BBB-/Negative/--, Russia national scale 'ruAA+').
The negative outlook reflects our view that the sluggish economic recovery in Russia may undermine the krai's efforts to achieve a positive operating balance and modest deficit after capital expenditures by 2011. Our rating factors in our near-certainly that the krai's direct debt will remain less than 20% of operating revenues within next three years, with debt service not exceeding 10% of operating revenues.
We might revise the outlook to stable if the krai manages to curb expenditure growth to the level needed to ensure a gradual reversal of negative operating balances into positive territory by 2011, backed by a sound economic revival in Russia in general or additional support from the federal government.
"A sharper decline in revenues or the krai's inability to curb expenditure growth, which would consequently lead to an increase of the krai's debt burden beyond our projected levels, might lead us to lower the ratings," said Mr. Ejgel.
|
