Fitch Publishes Russia's City of Tomsk at 'BB'
OREANDA-NEWS. Fitch Ratings has published Russia's City of Tomsk Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB', with Stable Outlooks and a Short-term foreign currency IDR at 'B'. The agency has also published the city a National Long-term rating at 'AA-(rus)' with Stable Outlook.
Fitch has also published the city of Tomsk's outstanding senior unsecured domestic bonds of RUB1.1bn (ISIN RU000A0JQX85 and RU000A0JTDV5) a local currency long-term rating of 'BB' and a National Long-term rating 'AA-(rus)'.
Fitch expects Tomsk's budgetary performance to improve with the operating margin restoring to the 20%-level in 2014-2016. The city's operating margin decreased to 14.3% in 2013 (2009-2013 average 25%) due to reduced operating revenue. Fitch expects the city's deficit before debt variation to narrow substantially to an almost balanced budget in 2014 and slight surpluses are expected in 2015-2016.
Fitch expects the city to reduce capex to about 26%-27% of total spending in the medium term. Tomsk's capital outlays were relatively high, averaging at 39% of total expenditure in 2009-2013. Tomsk's self-financing capacity on capex (current balance and capital revenue) remained sound, covering on average 91% of total capex in 2009-2013.
Fitch expects a moderate decrease in Tomsk's direct risk down to about 26% of current revenue in 2014 and 20%-22% in 2015-2016 (2013: 30%). The city's debt stock was 56% composed of short-term bank loans followed by domestic bonds (35%) and budget loans (9%) contracted from the Tomsk region. The debt coverage ratio should improve to less than two years of the current balance in the medium term.
Fitch assesses Tomsk's exposure to refinancing risk as moderate due to the short-term nature of bank loans. The city intends to issue a domestic bond in 2014, aiming to refinance debt obligations coming due this year. The bank loans comprised a prime source for the city's liquidity borrowing totalling RUB1.7bn at end-2013 (2012: RUB860m). These loans have short maturities of about 12 months, spread throughout the year by several intakes.
Tomsk's cash position is sound with cash reserves on accounts amounting to RUB529m by end-2013 (2012: RUB889m). The city did not resort to depositing its excess cash in bank accounts, so the liquidity was kept in treasury accounts. Bank loans utilised by the city are structured as stand-by facilities allowing Tomsk to tap lines of credit whenever necessary.
The city's economy is well-diversified, with a developed industrial sector. The tax concentration of the city's revenue is low with the proportion of taxes paid by top taxpayers representing 12% of the total tax revenue received by the city in 2013. The administration forecasts continued slowdown of the city's economy with projected industrial output growing by about 2%-4% yoy in 2014-2016 (2013: 7%).
Lengthening of the city's debt profile along with maintenance of sound budgetary performance with margins at about 20%-level in the medium term would be positive for the ratings.
Increasing debt and/or weak budgetary performance, leading to deterioration of debt coverage ratios with direct risk payback consistently above average maturity of debt portfolio would be negative for the ratings.
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