OREANDA-NEWS. Fitch Ratings has affirmed Khanty-Mansyisk Autonomous Region's (KMAR) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB', its Short-term foreign currency IDR at 'F3', and its National Long-term rating at 'AAA(rus)'. The Outlooks are Negative on the Long-term IDRs, and Stable on the National Long-term rating.

The affirmation reflects Fitch's unchanged baseline scenario regarding an expected improvement in the region's operating performance in the medium term, its robust economy and low debt. The ratings also consider the concentration of the region's tax base in the oil and gas sector, wider than historically low deficit before debt variation and lower cash reserves.

Fitch expects KMAR's operating surpluses to recover up to 6% of operating revenue in 2014 and up to 10% in 2015-2016 (2013: operating deficit 3.9%). This will primarily be aided by an expected recovery of tax proceeds in the prime sector in 2014. The agency also expects KMAR's deficit before debt variation to narrow to 8% of total revenue in 2014 from 20.7% in 2013, on the back of optimised operating expenditure and reduced capital outlays.

The region's direct risk is likely to remain moderate in 2014-2016, despite an expected increase of up to 14% by end-2014 and 17%-18% in 2015-2016. The region's outstanding debt stock totalling RUB12.4bn (or 9% of 2013 current revenue) is composed of bank loans maturing in December 2014. The region intends to issue domestic bonds or refinance maturing loans with new ones, depending on market conditions.

The region's cash holdings stood at RUB5.3bn at end-August 2014 (2013: RUB6.4bn). Additional liquidity was supplemented by untapped lines of credit with Sberbank of Russia (BBB/Negative/F3) up to RUB6.65bn. Accumulated cash reserves allowed KMAR to cover a materially increased deficit before debt variation in 2013, but as a result were significantly depleted.

Taxes accounted for 93% of KMAR's operating revenue in 2013 (2012: 94.6%). The region's top 10 taxpayers are all Russia's major oil and gas companies, which contributed 52.1% of total taxes in 2012 (2011: 51.5%). In the administration's view, the region's oil and gas sector will restore profitability from 2014, after having been negatively affected by fiscal changes in 2013.

A downgrade could result if the sovereign is downgraded, or in the absence of a sovereign downgrade, from consistently weak budgetary performance leading to insufficient debt service coverage and a material increase of refinancing risk.