Fitch Upgrades Novosibirsk Region to 'BBB-'; Outlook Stable


Link to Fitch Ratings' Report: Novosibirsk Region - RatingAction ReportMOSCOW, October 29 (Fitch) Fitch Ratings has upgraded theNovosibirsk Region's Long-term foreign and local currency ratings to 'BBB-' from'BB+' and its National Long-term rating to 'AA+(rus)' from 'AA(rus)'. TheOutlooks are Stable. The agency has also upgraded Novosibirsk Region's Short-termforeign currency rating to 'F3' from 'B'. Fitch has also assigned the region's upcoming RUB5bn domesticbond issue, due 30 October 2018, an expected Long-term local currency rating of'BBB-(EXP)' and an expected National Long-term rating of 'AA+(rus)(EXP)'. The bondis rated at the same level as the region's Long-term local currency and NationalLong-term ratings as it represents a senior unsecured obligation ofNovosibirsk Region. The final ratings are contingent upon the receipt of finaldocuments conforming to information already received.KEY RATING DRIVERSThe upgrade reflects the continued intrinsic strength of theregion's credit profile and considers the following rating drivers and theirrelative weights:High Novosibirsk region's administration is marked by a track recordof prudent fiscal management and adherence to conservative debt policy.Despite an unfavourable macroeconomic trend so far in 2013 and growingpressure on Russian regions' operating expenditure Novosibirsk's economicperformance has remained resilient. Fitch expects the region will continue to demonstratedouble-digit operating margins in 2013-2015, extending the trend over thelast five years. The region's attractiveness for investments is steadily growing,with domestic investments in fixed assets increasing to RUB162bn in 2012(2011:RUB140bn), and foreign investments up 45% yoy at to USD772m.The region's direct risk is low and its debt payback ratio isstrong. Fitch expects debt to remain low with direct risk at below 30% ofcurrent revenue in 2015 (2013: around 20% of expected full-year current revenue)and the payback ratio at around two years. The region is improving the maturityprofile of its direct risk, which currently contains a large portion ofshort-term bank loans. The region has contracted three- and seven-year bank loans sofar in 2013 and plans to issue RUB5bn domestic bonds with a five-year maturityon October 31 to refinance maturing short-term debt.MediumFitch expects the region to maintain its sound operatingperformance with an operating margin close to 12% in 2013. This will be supported byfurther expansion of the regional tax base and by operating expenditurecontrol. Operating margin was 14.6% for 2012, demonstrating continuedstability in the region's budgetary performance. Fitch expects the region torecord a moderate deficit in 2013-2014, driven by high capex exceeding 20% oftotal expenditure This is, however, mitigated by the region's strongself-financing capacity, which in 2010-2012 averaged 92%.The regional economy is well-diversified across sectors andacross a large number of companies. In 2012, gross regional product (GRP)increased 4.1%, outpacing the national average of 3.4%. The administrationexpects that, over the medium-term, economic growth will continue to outperform thenational economy. This will be driven by growing transit and logisticservices due to the region's proximity to large Siberian cities.RATING SENSITIVITIES A strong budgetary performance with operating margins aboveFitch's expectations of 13%-15% in the medium term, conducive to maintaining debtcoverage ratio at below two years, would be positive for the ratings.A sharp increase of debt and contingent liabilities leading tosignificant growth of net overall risk and deterioration in debt coveragewould lead to a downgrade.Contact: Primary AnalystVictoria SemerkhanovaAnalyst+7 495 956 99 65Fitch Ratings CIS Ltd26 Valovaya StreetMoscow 115054 Secondary AnalystKonstantin AnglichanovDirector +7 495 956 99 94Committee ChairpersonGuido BachSenior Director+49 69 768076 111Media 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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