OREANDA-NEWS. Fitch Ratings has affirmed the Chuvash Republic's (Chuvashia) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB+', with Stable Outlooks, and Short-term foreign currency IDR at 'B'. The agency has also affirmed the region's National Long-term rating at 'AA(rus)' with Stable Outlook.

Chuvash Republic's RUB3.5bn outstanding senior unsecured domestic bonds (ISIN RU000A0JRJX2, RU000A0JSFK5 and RU000A0JTYB3) have also been affirmed at 'BB+' and 'AA(rus)'.

KEY RATING DRIVERS
The affirmation reflects region's moderate direct risk and contingent liabilities, and improved operating performance in line with Fitch's forecast. The agency also takes into account that refinancing pressure will persist in the medium term.

Fitch expects Chuvashia will continue to demonstrate stable budgetary performance with operating margin around 8% in 2014-2016. Operating balance improved to 7.3% of preliminary estimated operating revenue in 2013 from 4.9% in 2012. This was supported by tax base growth and the administration's ability to curb operating expenditure growth. The republic recorded a minor deficit before debt variation of 1.6% of total revenue in 2013 (2012: 5.2%). The deficit was fully financed by accumulated cash reserves thus enabling the republic to contain the growth of direct risk.

Fitch expects the region's direct risk will remain moderate in the medium term and will not exceed 30% of current revenue. In 2013, the region's direct risk declined to 28% of preliminary estimated current revenue from 30.8% one year earlier. The maturity profile of the direct risk is stretched until 2032. However, most of the repayments are concentrated in the medium term. The republic will have to redeem 70% of its direct risk between 2014 and 2016. Fitch believes Chuvashia will have no problems with access to resources for refinancing. Fitch also expects the structure of the region's direct risk will remain stable with the proportion of short-term debt at about 30% of the total in 2014-2015.

The region's contingent risk remains low. Guarantees issued by the republic decreased to RUB1bn in 2014 from RUB1.4bn in 2013. Data on the PSEs' debt will be available later in 2014, but Fitch assumes it remains low and well-controlled.

The republic's socio-economic profile is historically weaker than that of the average Russian region. Its per capita gross regional product was about 31% lower than the national median in 2011. However, Chuvashia has a diversified economy, which grew by 5.2% in 2012, above the national average of 3.4%. According to the administration's preliminary estimates, the republic's economy stagnated in 2013 on the back of unfavourable national macroeconomic trends. The administration expects the regional economy will recover from 2014 and grow by an average 3% in 2014-2016.

RATING SENSITIVITIES
The region's ratings could be positively affected by the restoration of the operating margin to the historical high of above 15%, along with the containment of direct risk below 40% of current revenue.

Sharp growth of direct risk to above 50% of current revenue coupled with inability to ease refinancing pressure and deterioration of operating performance resulting in weak debt coverage could lead to a downgrade.