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

Link to Fitch Ratings' Report: Novosibirsk Region - Rating Action ReportMOSCOW, October 29 (Fitch) Fitch Ratings has upgraded the Novosibirsk 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)'. The Outlooks are Stable. The agency has also upgraded Novosibirsk Region's Short-term foreign currency rating to 'F3' from 'B'. Fitch has also assigned the region's upcoming RUB5bn domestic bond 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 bond is rated at the same level as the region's Long-term local currency and National Long-term ratings as it represents a senior unsecured obligation of Novosibirsk Region. The final ratings are contingent upon the receipt of final documents conforming to information already received. KEY RATING DRIVERS The upgrade reflects the continued intrinsic strength of the region's credit profile and considers the following rating drivers and their relative weights: High Novosibirsk region's administration is marked by a track record of prudent fiscal management and adherence to conservative debt policy. Despite an unfavourable macroeconomic trend so far in 2013 and growing pressure on Russian regions' operating expenditure Novosibirsk's economic performance has remained resilient. Fitch expects the region will continue to demonstrate double-digit operating margins in 2013-2015, extending the trend over the last 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 is strong. Fitch expects debt to remain low with direct risk at below 30% of current 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 maturity profile of its direct risk, which currently contains a large portion of short-term bank loans. The region has contracted three- and seven-year bank loans so far in 2013 and plans to issue RUB5bn domestic bonds with a five-year maturity on October 31 to refinance maturing short-term debt. Medium Fitch expects the region to maintain its sound operating performance with an operating margin close to 12% in 2013. This will be supported by further expansion of the regional tax base and by operating expenditure control. Operating margin was 14.6% for 2012, demonstrating continued stability in the region's budgetary performance. Fitch expects the region to record a moderate deficit in 2013-2014, driven by high capex exceeding 20% of total expenditure This is, however, mitigated by the region's strong self-financing capacity, which in 2010-2012 averaged 92%. The regional economy is well-diversified across sectors and across a large number of companies. In 2012, gross regional product (GRP) increased 4.1%, outpacing the national average of 3.4%. The administration expects that, over the medium-term, economic growth will continue to outperform the national economy. This will be driven by growing transit and logistic services due to the region's proximity to large Siberian cities. RATING SENSITIVITIES A strong budgetary performance with operating margins above Fitch's expectations of 13%-15% in the medium term, conducive to maintaining debt coverage ratio at below two years, would be positive for the ratings. A sharp increase of debt and contingent liabilities leading to significant growth of net overall risk and deterioration in debt coverage would lead to a downgrade. Contact: Primary Analyst Victoria Semerkhanova Analyst +7 495 956 99 65 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com.">www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and 'International Local and Regional Governments Rating Criteria outside United States', dated 9 April 2013, are available on www.fitchratings.com.">www.fitchratings.com. 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