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Rating Action:

Moody's changes outlook on 13 Russian sub-sovereigns to positive; affirms ratings

 The document has been translated in other languages

29 Jan 2018

Actions follow expected improvement of sovereign creditworthiness

NOTE: On February 21, 2018, the press release was corrected as follows: At the end of the Press Release, the releasing office was changed to Moody's Investors Service Ltd. Revised release follows.

London, 29 January 2018 -- Moody's Investors Service, ("Moody's") has changed to positive from stable the outlooks on the ratings of 11 regional and local governments (RLGs) in Russia and two government-related issuers (GRIs), reflecting reduced systemic risk stemming from the sovereign's credit profile. At the same time, Moody's affirmed the ratings of these 13 issuers. Concurrently, Moody's has changed outlooks to stable from negative for four RLGs and affirmed their ratings. In addition, it affirmed the ratings of one RLG and maintained the stable outlook.

These rating actions follow the improvement of Russia's credit profile as captured by Moody's change of outlook to positive from stable on Russia's government rating (Ba1) on 25 January 2018. For additional information, please refer to the related announcement: https://www.moodys.com/research/Moodys-changes-outlook-on-Russias-ratings-to-positive-from-stable--PR_378221.

Specifically, Moody's has changed the outlook to positive from stable and affirmed the ratings of the following 11 RLGs: Moscow, City of (Ba1), St. Petersburg, City of (Ba1), Bashkortostan, Republic of (Ba2), Tatarstan, Republic of (Ba2), Autonomous-Okrug (region) of Khanty-Mansiysk (Ba2), Moscow, Oblast of (Ba2), Samara, Oblast of (Ba3), Chuvashia, Republic of (Ba3), Krasnodar, Krai of (B1), Krasnoyarsk, Krai of (B1) and Nizhniy Novgorod, Oblast of (B1).

Additionally, the ratings were affirmed and the outlooks were changed to positive from stable of the following two GRIs: SUE Vodokanal of St. Petersburg (Ba2) and OJSC Western High-Speed Diameter (Ba3).

Conversely, Moody's changed the outlook to stable from negative and affirmed the ratings of the following four RLGs: Omsk, Oblast of (Ba3), Komi, Republic of (B1), Krasnodar, City of (B1) and Omsk, City of (B1). In addition, the ratings of Volgograd, City of (B2) were affirmed and stable outlook maintained.

The full list of affected issuers and credit ratings can be found at the end of this press release.

RATINGS RATIONALE

-- RATIONALE FOR OUTLOOK CHANGE TO POSITIVE FROM STABLE AND AFFIRMATION OF 11 RLGs' AND 2 GRIs' RATINGS

The outlook change to positive from stable of Moscow, City of, St. Petersburg, City of, Bashkortostan, Republic of, Tatarstan, Republic of, Autonomous-Okrug (region) of Khanty-Mansiysk, Moscow, Oblast of, Samara, Oblast of, Chuvashia, Republic of, Krasnoyarsk, Krai of, Krasnodar, Krai of and Nizhniy Novgorod, Oblast of reflects the decrease in systemic pressure following the change to positive outlook for Russia.

The revenue base of Russian RLGs will likely grow in 2018 given the recovery of economic performance, which will help sustain RLGs' budgets. Real GDP growth is estimated to have been 1.7% in 2017 and is forecasted at 1.6% for 2018 compared to -0.2% in 2016. Stronger tax collection and a number of tax initiatives positively influencing RLGs' revenues also added to higher revenue bases. Stronger revenues and tighter cost controls will result in the improvement of these issuers' performances as reflected in their current budgets which are more conservative compared to previous years. Federal government's stricter control and measures to foster improvement of the RLGs' performance already constrained sector-wide debt burden which Moody's expects to decrease in 2018.

Furthermore, debt affordability has improved and is supported by ongoing lending from state-owned banks. The abundant liquidity of the banking sector (the main donor of fiscal resources for Russian RLGs) has reduced borrowing rates for RLGs while loan supply has increased.

Higher ability of the sovereign government to provide system-wide on-going support also exerts positive pressure on the issuers' credit standing. The large federal government programme for refinancing market debt with cheap budget loans has significantly eased the refinancing pressure of the regions. As a result, the share of budget loans in the debt structure of the sector has materially increased since 2014. In 2017, the federal government announced a restructuring programme of the budget loans that extended their maturities to seven to twelve years from one to five years originally.

The affirmation of the issuer ratings with positive outlooks of SUE Vodokanal of St. Petersburg and the backed senior unsecured rating of OJSC Western High-Speed Diameter reflects their status as GRIs fully owned by the St. Petersburg government and their strong credit linkages with the City of St. Petersburg. OJSC Western High-Speed Diameter also benefits from a guarantee on its principal payments from the Russian government.

--RATIONALE FOR AFFIRMATION OF RATINGS AND OUTLOOK CHANGE TO STABLE FROM NEGATIVE FOR 4 RLGs

The affirmation of the ratings of Omsk, Oblast of reflects stabilisation of its financial performance and debt metrics. The deficit is estimated at below 2% of total revenues in 2017 compared to 7% in 2016 while the debt burden has decreased to around 77% of own source revenues in 2017 from 80% in 2016. The stable outlook reflects that the positive pressure arising from the reduced systemic risk is offset by the significant debt burden and continuing weak operating balances.

The affirmation of the rating with stable outlook on Omsk, City of reflects the linkages of the city with Omsk, Oblast of. The city's revenue base depends to a large extent on transfers from Oblast, which totalled around 50% of city revenues for the last three years. The stabilisation in fiscal conditions of the Oblast is expected to maintain the level of transfers to the city at adequate levels. Moody's forecasts that the stable operating environment will support the city's own-source revenues and debt affordability, maintaining credit pressures at current levels.

The affirmation of the ratings of Komi, Republic of reflects the continued relatively high debt burden despite declining recently. Moody's forecasts that the republic ended a trend seen over the past six years of significant budgetary deficits. Revenues benefited from higher taxes from the key taxpayers while expense consolidation efforts also contributed to such improvement. The debt burden has declined to an estimated 60% of own-source revenues in 2017 compared to 78% a year earlier. However, although the republic adopted conservative budgets, revenues remain volatile given their dependence on receipts from key taxpayers which could prevent the republic from achieving budgetary targets. These weaknesses offset the positive pressure from the decreasing systemic risk underpinning the stable outlook on the ratings.

The affirmation of the rating of Krasnodar, City of reflects repayments of sizeable overdue payables in 2017. The city benefited from a significant increase in transfers from Krasnodar, Krai of, despite the latter's own consolidation measures. Such support, together with stronger own-source revenues, enabled the city to maintain performance at around historic levels (with estimated deficit at below 4% of total revenues in 2017), and avoided growth in its debt burden and pressure on liquidity. The stable outlook reflects the fact that the anticipated decrease in systemic risk will be offset by continued modest fiscal performance.

-- RATIONALE FOR AFFIRMATION OF RATINGS WITH STABLE OUTLOOK FOR VOLGOGRAD, CITY OF

The affirmation of the rating and stable outlook of Volgograd, City of reflects the very high debt burden with significant near-term refinancing pressure. Moody's notes that while the city's fiscal performance will improve going forward as it adopts conservative budgets it will not enable Volgograd to significantly reduce its debt burden over the course of the next 12-18 months. The net direct and indirect debt to own-source revenue is estimated at around 1.5x in 2017 (1.5x in 2016). These credit pressures are likely to remain despite the decreasing systemic pressure.

--WHAT COULD CHANGE THE RATINGS UP/DOWN

Moscow, City of, St. Petersburg, City of, Bashkortostan, Republic of, Tatarstan, Republic of, Autonomous-Okrug (region) of Khanty-Mansiysk, Moscow, Oblast of and the two GRIs could experience upward rating pressure in case of upward changes in the sovereign rating, provided their budget performances do not deteriorate considerably. For other entities with positive outlooks, upward pressure could arise from both upward changes in the sovereign rating as well as their ability to sustain improved financial performances and debt metrics.

For Komi, Republic of the positive pressure could stem from its proven ability to sustain the track record of improved performance. For other entities with a stable outlook a rating upgrade would require an improvement in their financial performance.

Given positive and stable outlooks for the RLGs and GRIs the negative pressure is not expected. At the same time, any unexpected deterioration in the credit metrics of sub-sovereigns, could exert downward pressure on ratings or outlooks.

-- RATINGS AFFECTED

-- THE RATINGS OF THE FOLLOWING 13 ISSUERS WERE AFFIRMED WITH POSITIVE OUTLOOK

Affirmations:

..Issuer: Bashkortostan, Republic of

....LT Issuer Rating, Affirmed Ba2

..Issuer: Chuvashia, Republic of

....LT Issuer Rating, Affirmed Ba3

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3

..Issuer: Khanty-Mansiysk AO

....LT Issuer Rating, Affirmed Ba2

..Issuer: Krasnodar, Krai of

....LT Issuer Rating, Affirmed B1

..Issuer: Krasnoyarsk, Krai of

....LT Issuer Rating, Affirmed B1

..Issuer: Moscow, City of

....LT Issuer Rating, Affirmed Ba1

..Issuer: Moscow, Oblast of

....LT Issuer Rating, Affirmed Ba2

..Issuer: Nizhniy Novgorod, Oblast

....LT Issuer Rating, Affirmed B1

..Issuer: OJSC Western High-Speed Diameter

...Backed Senior Unsecured Regular Bond/Debenture, Affirmed Ba3

..Issuer: Samara, Oblast of

....LT Issuer Rating, Affirmed Ba3

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3

..Issuer: St. Petersburg, City of

....LT Issuer Rating, Affirmed Ba1

..Issuer: SUE Vodokanal of St. Petersburg

....LT Issuer Rating, Affirmed Ba2

..Issuer: Tatarstan, Republic of

....LT Issuer Rating, Affirmed Ba2

Outlook Actions:

..Issuer: Bashkortostan, Republic of

....Outlook, Changed To Positive From Stable

..Issuer: Chuvashia, Republic of

....Outlook, Changed To Positive From Stable

..Issuer: Khanty-Mansiysk AO

....Outlook, Changed To Positive From Stable

..Issuer: Krasnodar, Krai of

....Outlook, Changed To Positive From Stable

..Issuer: Krasnoyarsk, Krai of

....Outlook, Changed To Positive From Stable

..Issuer: Moscow, City of

....Outlook, Changed To Positive From Stable

..Issuer: Moscow, Oblast of

....Outlook, Changed To Positive From Stable

..Issuer: Nizhniy Novgorod, Oblast

....Outlook, Changed To Positive From Stable

..Issuer: OJSC Western High-Speed Diameter

....Outlook, Changed To Positive From Stable

..Issuer: Samara, Oblast of

....Outlook, Changed To Positive From Stable

..Issuer: St. Petersburg, City of

....Outlook, Changed To Positive From Stable

..Issuer: SUE Vodokanal of St. Petersburg

....Outlook, Changed To Positive From Stable

..Issuer: Tatarstan, Republic of

....Outlook, Changed To Positive From Stable

-- THE RATINGS OF THE FOLLOWING 5 ISSUERS WERE AFFIRMED WITH STABLE OUTLOOK

Affirmations:

..Issuer: Komi, Republic of

....LT Issuer Rating, Affirmed B1

..Issuer: Krasnodar, City of

....LT Issuer Rating , Affirmed B1

..Issuer: Omsk, City of

....LT Issuer Rating, Affirmed B1

..Issuer: Omsk, Oblast of

.... LT Issuer Rating, Affirmed Ba3

..Issuer: Volgograd, City of

... LT Issuer Rating, Affirmed B2

Outlook Actions:

..Issuer: Komi, Republic of

....Outlook, Changed To Stable From Negative

..Issuer: Krasnodar, City of

....Outlook, Changed To Stable From Negative

..Issuer: Omsk, City of

....Outlook, Changed To Stable From Negative

..Issuer: Omsk, Oblast of

....Outlook, Changed To Stable From Negative

..Issuer: Volgograd, City of

....Outlook, Remains 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.

The specific economic indicators, as required by EU regulation, are not available for these entities. The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action.

Sovereign Issuer: Russia, Government of

GDP per capita (PPP basis, US$): 26,926 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): -0.2% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 5.4% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -3.7% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 2% (2016 Actual) (also known as External Balance)

External debt/GDP: 40.1% (2016 Actual)

Level of economic development: Moderate level of economic resilience

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 25 January 2018, a rating committee was called to discuss the ratings of the Russian sub-sovereign entities. The main points raised during the discussion were: The systemic risk in which the issuers operate has materially decreased. Pressure from idiosyncratic factors for some entities still remains.

The principal methodology used in rating Moscow, City of, St. Petersburg, City of, Bashkortostan, Republic of, Tatarstan, Republic of, Autonomous-Okrug (region) of Khanty-Mansiysk, Moscow, Oblast of, Samara, Oblast of, Chuvashia, Republic of, Krasnodar, City of, Krasnodar, Krai of, Nizhniy Novgorod, Oblast of, Omsk, Oblast of, Komi, Republic of, Volgograd, City of, Krasnoyarsk, Krai of and Omsk, City of was Regional and Local Governments published in January 2018.

The principal methodology used in rating SUE Vodokanal of St. Petersburg and OJSC Western High-Speed Diameter was Government-Related Issuers published in August 2017.

Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Vladlen Kuznetsov
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Mauro Crisafulli
Associate Managing Director
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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