Fitch Affirms Orenburg Region at 'BB'; Outlook Positive


MOSCOW/MILAN/LONDON, October 24 (Fitch) Fitch Ratings hasaffirmed the Russian Orenburg Region's Long-term foreign and local currency ratingsat 'BB' and the Short-term foreign currency rating at 'B'. The NationalLong-term rating has been affirmed at 'AA-(rus)'. The Outlooks on the Long-termratings are Positive.The Orenburg Region's outstanding senior unsecured domesticbonds of RUB9bn (ISIN RU000A0JTGE4 and RU000A0JTZK1) and JSC Orenburg HousingMortgage Corporation's (OHMC) senior unsecured bond of RUB1.37bn (ISINRU000A0JS3Q8) guaranteed by the region have also been affirmed at 'BB' and'AA-(rus)'.KEY RATING DRIVERSFitch expects Orenburg region's debt to remain moderate withdirect risk at RUB25bn in 2014-2015, up from about RUB17bn in 2012. In Fitch'sbase case scenario direct risk is not expected to exceed 35% of currentrevenue in the medium term. The payback ratio (direct risk/current balance) islikely to be at about three years in 2013-2015, less than the expected averagematurity of the region's debt portfolio of about five years.Orenburg region's liquidity was strong in 2011-2012. Cashreserves increased to RUB2.3bn in 2012 from RUB1.2bn in 2011. Additionally the regionmaintains stand-by credit lines of up to RUB5bn, tendered on a rollingbasis with commercial banks.Fitch expects Orenburg region to restore its operating margin toabout 10% in 2013-2015, based on growing output in the core oil and gassector. The region's operating margin fell to 5.8% in 2012 from 9.9% in 2011, due tooperating expenditure increase in response to 2012 presidentialinitiatives aimed at salary increases for certain groups of public employees. The local economy is dominated by oil and gas companies, whichprovide a sustainable tax base. Concentration of the tax base exposesOrenburg region to potential changes in the fiscal regime or business cycles in thesector. A robust economy supports stronger-than-average wealth indicators- GRP per capita exceeded the Russian region median by 25% in 2012 - whileaverage salary was just 10% below the median. Orenburg region's contingent risk is low and limited to severalguarantees issued to local companies to promote economic development and toself-serviced debt of its public entities. The region guaranteed the domesticbond of OHMC of RUB1.37bn issued in 2012. None of the guarantees have beencalled by the lenders and the region is likely to issue several new guarantees in2013-2015.Orenburg region funded capex of RUB11.1bn in 2012 (2011:RUB11.6bn), which represented 16.3% of total spending (2011: 18.4%). The region'sself-financing capacity is strong, with the current balance and capital revenuecomfortably covering 78% of capital outlays in 2012 (2011: 90%).RATING SENSITIVITIES The ratings could be positively affected by a sustainable debtcoverage ratio of below four years of current balance and direct risk remainingbelow 40% of current revenue.Contact: Primary AnalystKonstantin AnglichanovDirector +7 495 956 99 94Fitch Ratings CIS Ltd26 Valovaya StreetMoscow, 115054Secondary AnalystBehruz IsmailovAssociate Director +7 495 956 99 80Committee ChairpersonRaffaele CarnevaleSenior Director+39 02 87 90 87 203Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495956 9908, Email:; Peter Fitzpatrick,London, Tel: +44 20 3530 1103, Email: information is available at"> Applicable criteria, 'Tax-Supported Rating Criteria', dated 14August 2012, and 'International Local and Regional Governments Rating Criteriaoutside United States', dated 9 April 2013, are available"> Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS ANDDISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THISLINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLEON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'SCODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATEFIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLEFROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHERPERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN ANEU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUERON THE FITCH WEBSITE.

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