OREANDA-NEWS. Fitch Ratings has affirmed the Russian City of Tomsk's 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 city's National Long-term rating at 'AA-(rus)' with Stable Outlook.

Fitch has also affirmed the city of Tomsk's outstanding RUB800m (RU000A0JTDV5) senior unsecured domestic bonds' local currency long-term rating at 'BB' and National Long-term rating at 'AA-(rus)'.

KEY RATING DRIVERS
The affirmation reflects Fitch's unchanged baseline scenario regarding the city's decreasing debt with moderate refinancing risk, sound budgetary performance and cash position and strong self-financing capacity on capital outlays. The ratings also factor in the well-diversified local economy, supporting low concentration of the city's tax base.

In line with Fitch's expectations, the city's direct risk moderately decreased in 1H14, with an expected end-of-year threshold of 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.

Fitch assesses Tomsk's exposure to refinancing risk as moderate due to the short-term nature of the bank loans. However, the city plans to substitute some of its loans with a domestic bond in 2014, effectively refinancing debt obligations coming due this year. The bank loans were a prime source for the city's liquidity borrowing totalling RUB1.7bn at end-2013 (2012: RUB860m). Some of these loans have short-term maturities, although they are spread throughout the year.

Fitch expects Tomsk to post sound budgetary performance with the operating margin gradually being restored to 20% 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 to an almost balanced budget from 2014 onwards.

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 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.

Tomsk's cash position is sound, with interim cash reserves on accounts of RUB600m by end-7M14 (2013: RUB529m). 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 when 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%).

RATING SENSITIVITIES
Lengthening of the city's debt profile along with maintenance of sound budgetary performance with margins at about 20% in the medium term would be positive for the ratings.

Increasing debt and/or weak budgetary performance, leading to deterioration of direct risk payback consistently above average maturity of debt portfolio would be negative for the ratings.