Actions follow stabilisation of sovereign creditworthiness
London, 20 February 2017 -- Moody's Investors Service, ("Moody's") has
changed to stable from negative the outlooks on the ratings of 12 regional
and local governments (RLGs) in Russia and two government-related
issuers (GRIs), reflecting reduced systemic risk as the sovereign's
credit profile stabilises. At the same time, it has affirmed
the ratings of these 14 issuers. Concurrently, Moody's has
affirmed the ratings and maintained negative outlooks for four RLGs.
These rating actions follow the stabilisation of Russia's credit profile
as captured by Moody's change of outlook to stable from negative on Russia's
government rating (Ba1) on 17 February 2017. For additional information,
please refer to the related announcement: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_361387.
Specifically, Moody's has changed the outlook to stable and affirmed
the ratings of the following 12 RLGs: City of Moscow (Ba1),
City of St. Petersburg (Ba1), Republic of Bashkortostan (Ba2),
Republic of Tatarstan (Ba2), Autonomous-Okrug (region) of
Khanty-Mansiysk (Ba2), Moscow Oblast (Ba2), Samara
Oblast (Ba3), Chuvashia Republic (Ba3), Krasnodar Krai (B1),
Krasnoyarsk Krai (B1), Oblast of Nizhniy Novgorod (B1) and City
of Volgograd (B2).
Additionally, the ratings were affirmed and the outlooks were changed
to stable from negative of the following two GRIs: SUE Vodokanal
of St. Petersburg (Ba2) and OJSC Western High-Speed Diameter
(Ba3).
Conversely, Moody's affirmed the ratings and maintained the
negative outlooks of the following four RLGs: Oblast of Omsk (Ba3),
Republic of Komi (B1), City of Krasnodar (B1) and City of Omsk (B1).
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 STABLE FROM NEGATIVE
AND AFFIRMATION OF 12 RLGs' AND 2 GRIs' RATINGS
The outlook change to stable from negative of City of Moscow, City
of St. Petersburg, Republic of Bashkortostan, Republic
of Tatarstan, Autonomous-Okrug (region) of Khanty-Mansiysk,
Moscow Oblast, Samara Oblast, Chuvashia Republic, Krasnodar
Krai, Krasnoyarsk Krai, Oblast of Nizhniy Novgorod and City
of Volgograd reflects the decrease in systemic pressure following the
change to stable outlook for Russia.
The revenue base of Russian RLGs will likely grow in 2017 given the recovery
of economic performance helping to sustain RLGs budgets: real GDP
growth is forecasted at 1% for 2017 compared to -0.2%
in 2016. 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.
In addition, 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.
The covenants imposed on these loans is helping to contain further debt
growth, thereby limiting deficits.
The affirmation of the ratings for these 12 RLGs reflects Moody's
views that the improvement in the systemic risk and broad RLG sector will
nonetheless not be sufficiently material to impact the credit profile
of each entity.
The affirmation of the issuer ratings with stable 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.
Moody's notes that despite deterioration of the standalone fiscal
strength of SUE Vodokanal of St. Petersburg the high ongoing and
extraordinary support from the City of St. Petersburg will maintain
the overall creditworthiness at the current level. The entity suffers
from weak performance and deteriorated liquidity. Its revenue base
was negatively affected by decreased water consumption, higher property
taxes and overcapacity of the existing facilities relative to current
levels of water consumption.
The affirmation of OJSC Western High-Speed Diameter's bond rating
with a stable entity outlook reflects its link with the City of St.
Petersburg and the guarantee that the Russian government provides on its
bond principal payments.
-- RATIONALE FOR AFFIRMATION OF RATINGS AND MAINTAINING
NEGATIVE OUTLOOKS FOR 4 RLGs
The affirmation of the ratings with negative outlooks of Oblast of Omsk,
Republic of Komi, City of Omsk and City of Krasnodar reflects Moody's
ongoing expectation that their fiscal performances and growing debt burdens
will continue to put downward pressure on their respective ratings.
Omsk Oblast has demonstrated weak fiscal performance during the last three
years with negative gross operating balances and fiscal deficits around
7% of total revenues. This has resulted an increase of the
debt burden (net direct and indirect debt) to 80% of own-source
revenues in 2016 from 72% in 2014. While Oblast budgeted
a significant deficit reduction in 2017-18 and relatively stable
debt metrics, the upcoming election cycle could impair its expense
consolidation efforts and prevent it from achieving these budgetary targets,
in turn triggering the downward pressure on the rating.
Republic of Komi has consistently demonstrated weak budgetary performance
with high deficits recorded over the last three years. As a result,
the debt burden has rapidly increased with net direct and indirect debt
growing to 78% of its own-source revenues in 2016 from 61%
in 2014. While performance improved in 2016 with deficit reduced
to 9% of total revenues (14% in 2015), debt growth
will likely continue.
The negative outlook on the City of Omsk reflects (1) the negative outlook
for Omsk Oblast, which means that weak fiscal conditions and budgetary
consolidation would negatively affect the level of transfers to the city;
and (2) expectations that the low own-source revenues and rigid
expense base will continue to pressurise performance. 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 negative outlook on the City of Krasnodar reflects the expected pressure
on its fiscal performance from the fiscal consolidation of Krasnodar Krai,
which could mean lower transfers from Krai (which accounted for 43%
of total revenues in 2016), which in its turn could result in higher
debt metrics and weak liquidity. As a result of reduced transfers
from Krai, City of Krasnodar has accumulated sizeable overdue payables
(estimated at 12% of operating revenues in 2016).
--WHAT COULD CHANGE THE RATINGS UP/DOWN
City of Moscow, City of St. Petersburg, Republic of
Bashkortostan, Republic of Tatarstan, Autonomous-Okrug
(region) of Khanty-Mansiysk, Moscow Oblast 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.
For other entities with stable outlooks, upward pressure could arise
from upward changes in the sovereign rating as well as improvements of
individual financial performances.
For Omsk Oblast the rating will be downgraded if the region fails to (1)
improve its budgetary performance, which should lead to stabilisation
or reduction in debt burden; and (2) decrease refinancing risk.
For other Russian RLGs with negative outlooks an improvement in their
performance leading to the stabilisation of their debt burden at the current
levels could exert stabilisation of outlooks.
Deterioration in the sovereign's credit quality, and/or persistent
deterioration in the credit metrics of sub-sovereigns, could
exert downward pressure on all sub-sovereigns.
-- RATINGS AFFECTED
-- THE RATINGS OF THE FOLLOWING 14 ISSUERS WERE AFFIRMED
WITH STABLE OUTLOOK
..Issuer: Moscow, City of
....LT Issuer Rating, Affirmed Ba1
....Outlook, Changed To Stable From
Negative
..Issuer: St. Petersburg, City of
....LT Issuer Rating, Affirmed Ba1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba1
....Outlook, Changed To Stable From
Negative
..Issuer: SUE Vodokanal of St. Petersburg
....LT Issuer Rating, Affirmed Ba2
....Outlook, Changed To Stable From
Negative
..Issuer: OJSC Western High-Speed Diameter
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Ba3
....Outlook, Changed To Stable From
Negative
..Issuer: Bashkortostan, Republic of
....LT Issuer Rating, Affirmed Ba2
....Outlook, Changed To Stable From
Negative
..Issuer: Khanty-Mansiysk AO
....LT Issuer Rating, Affirmed Ba2
....Outlook, Changed To Stable From
Negative
..Issuer: Tatarstan, Republic of
....LT Issuer Rating, Affirmed Ba2
....Outlook, Changed To Stable From
Negative
..Issuer: Moscow, Oblast of
....LT Issuer Rating, Affirmed Ba2
....Outlook, Changed To Stable From
Negative
..Issuer: Samara, Oblast of
....LT Issuer Rating, Affirmed Ba3
....Outlook, Changed To Stable From
Negative
..Issuer: Chuvashia, Republic of
....LT Issuer Rating, Affirmed Ba3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba3
....Outlook, Changed To Stable From
Negative
..Issuer: Krasnodar, Krai of
....LT Issuer Rating, Affirmed B1
....Senior Unsecured Regular Bond/Debenture,
Affirmed B1
....Outlook, Changed To Stable From
Negative
..Issuer: Krasnoyarsk, Krai of
....LT Issuer Rating, Affirmed B1
....Outlook, Changed To Stable From
Negative
..Issuer: Nizhniy Novgorod, Oblast
....LT Issuer Rating, Affirmed B1
....Outlook, Changed To Stable From
Negative
..Issuer: Volgograd, City of
....LT Issuer Rating, Affirmed B2
....Outlook, Changed To Stable From
Negative
-- THE RATINGS OF THE FOLLOWING 4 ISSUERS WERE AFFIRMED
WITH NEGATIVE OUTLOOK
..Issuer: Omsk, Oblast of
....LT Issuer Rating, Affirmed Ba3
....Outlook, Remains Negative
..Issuer: Komi, Republic of
....LT Issuer Rating, Affirmed B1
....Outlook, Remains Negative
..Issuer: Omsk, City of
....LT Issuer Rating, Affirmed B1
....Outlook, Remains Negative
..Issuer: Krasnodar, City of
....LT Issuer Rating, Affirmed B1
....Outlook, Remains Negative
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$): 25,965 (2015
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -2.8% (2015
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 12.9%
(2015 Actual)
Gen. Gov. Financial Balance/GDP: -3.4%
(2015 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 5.1% (2015 Actual) (also
known as External Balance)
External debt/GDP: 38.0% (2015 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 16 February 2017, 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 for idiosyncratic
factors for some entities still remains.
The principal methodology used in rating Bashkortostan, Republic
of, Chuvashia, Republic of, Khanty-Mansiysk AO,
Komi, Republic of, Krasnodar, City of, Krasnodar,
Krai of, Krasnoyarsk, Krai of, Moscow, City of,
Moscow, Oblast of, Nizhniy Novgorod, Oblast,
Omsk, City of, Samara, Oblast of, St. Petersburg,
City of, Tatarstan, Republic of, Volgograd, City
of, Omsk, Oblast of, was Regional and Local Governments
published in January 2013.
The principal methodology used in rating SUE Vodokanal of St. Petersburg
and OJSC Western High-Speed Diameter was Government-Related
Issuers published in October 2014.
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.
The person who approved Moscow, City of, Moscow, Oblast
of, OJSC Western High-Speed Diameter, SUE Vodokanal
of St. Petersburg, St. Petersburg, City of credit
ratings is David Rubinoff, MD - Sub-Sovereigns,
Sub-Sovereign Group, 44 20 7772 5456, 44 20 7772 5454.
The person who approved Bashkortostan, Republic of, Chuvashia,
Republic of, Khanty-Mansiysk AO, Komi, Republic
of, Krasnodar, City of, Krasnodar, Krai of,
Krasnoyarsk, Krai of, Nizhniy Novgorod, Oblast of,
Omsk, City of, Omsk, Oblast of, Samara,
Oblast of, Tatarstan, Republic of, Volgograd,
City of credit ratings is Mauro Crisafulli, Associate Managing Director,
Sub-Sovereign Group, 44 20 7772 5456, 44 20 7772 5454.
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
SUBSCRIBERS: 44 20 7772 5454
David Rubinoff
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
