London, 23 July 2018 -- Moody's Investors Service, ("Moody's) has today
affirmed the B1 long-term issuer ratings of the Republic of Komi
and changed the outlook to positive from stable on these ratings.
RATINGS RATIONALE
RATIONALE FOR RATINGS AFFIRMATION
The affirmation of the Republic of Komi's B1 issuer ratings reflects
the relative strength of the region compared to its similarly-rated
Russian peers. While reporting leverage and operating budget surpluses
comparable with other B1-rated Russian regions, the Republic
of Komi's weaknesses stemming from its narrow and highly volatile
economy with contracting population are offset by lower reliance on short-term
debt compared to peers.
After the prolonged-period of negative operating performance in
2013-2016, the recovery in the oil sector being combined
with the region's recently prudent and conservative budgetary management
helped to consolidate the regional budget and increase operating budget
surpluses to 8.4% of gross operating revenues in 2017.
Moody's expects the achieved positive operating performance to sustain
in 2018-2019 thanks to the currently benign outlook for the oil
sector, the major contributor into the local economy and the regional
budget.
In addition to the improved budget flexibility, the Republic of
Komi also decreased its leverage in the last 12 months while lengthening
the average duration of its debt. After peaking to 71% in
2016, the ratio of net direct and indirect debt (NDID) to operating
revenues declined to 56% at year-end 2017 and is expected
to further drop below 50% by the end of the next year. In
addition to the decreased debt levels, the successful refinancing
of short-term bank loans with long-term bonds helped decreasing
the region's reliance on short-term debt to 6% of
NDID as at year-end 2017 from 66% as at year-end
2016.
As per the application of Moody's Joint Default Analysis methodology for
regional and local governments, the Republic of Komi's assigned
baseline credit assessment (BCA) is now b1. Moody's raised
the region's BCA to b1 from b2 to reflect its improved operating
performance and decreased refinancing risk. The final rating of
B1 incorporates no government support uplift.
RATIONALE FOR OUTLOOK CHANGE
While affirming the Republic of Komi's B1 issuer ratings,
Moody's now recognizes the ongoing improvements in the issuer's
standalone metrics. These expectations together with the positive
developments in the operating environment, as reflected in the positive
outlook on the sovereign ratings, prompted the rating agency to
change the outlook on the issuer ratings to positive from stable.
WHAT COULD CHANGE THE RATING - UP
Republic of Komi's issuer ratings could be upgraded in case of upward
changes in the sovereign rating as well as the region's ability
to sustain improved financial performances and debt metrics over the next
12 to 18 months.
WHAT COULD CHANGE THE RATING - DOWN
Given the positive outlook, negative rating actions are not expected.
At the same time, any unexpected deterioration in the credit metrics
of the Republic of Komi could exert downward pressure on its rating or
outlook.
The publication of this rating action deviates from the previously scheduled
release date in the sovereign calendar published on www.moodys.com.
The reason for the deviation reflects Moody's recognition of significant
improvement in the region's financial metrics as reflected in the
recently released 2017 financial statements.
The specific economic indicators, as required by EU regulation,
are not available for the Republic of Komi. The following national
economic indicators are relevant to the sovereign rating, which
was used as an input to this credit rating action.
GDP per capita (PPP basis, US$): 27,833 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.5% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.5%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -1.5%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.2% (2017 Actual) (also
known as External Balance)
External debt/GDP: [not available]
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.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 18 July 2018, a rating committee was called to discuss the rating
of the Republic of Komi. The main points raised during the discussion
were: The issuer's financial performance, including its operating
margin, liquidity and debt structure, have materially improved.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
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.
Semyon Isakov
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
