OREANDA-NEWS. Fitch Ratings has affirmed the Russian City of St. Petersburg's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB', Short-term foreign currency IDR at 'F3' and National Long-term rating at 'AAA(rus)'. The Outlooks on the Long-term IDRs are Negative, and on the National Long-term rating Stable.

The affirmation reflects Fitch's unchanged baseline scenario on St. Petersburg's sound operating performance, low debt, and strong liquidity. They also consider the city's diversified, albeit slowing, economy. The Negative Outlook reflects that on the Russian sovereign's ratings.

Fitch expects the city to maintain sound fiscal performance with operating surpluses at about 20% of operating revenue (2013: 20%). The city posted an interim surplus before debt variation at 7% of total revenue by end-3Q14 (2013: surplus 4%).

Sound fiscal performance is driven by the city's sound tax base, which in Fitch's view is likely to expand by about 3%-4% in 2014 (2013: 13%). Taxes represented 82% of the city's 2013 operating revenue, mainly composed of corporate and personal income taxes.

St. Petersburg is the second-largest city in Russia. Its strong socio-economic profile benefits from the city's location, concentrated population, federal status and diversified economy. A developed economy provides the city with stable tax revenue and supports strong wealth indicators. GRP per capita and average salary per capita in 2013 were respectively 86% and 65% and above the national median.

RATING SENSITIVITIES
The city's ratings are capped by Russia's ratings (BBB/Negative). A downgrade is unlikely due to the intrinsic strength of the issuer, unless the sovereign is downgraded. However, a sustained deterioration from our baseline scenario would be negative for ratings.

The ratings would be positively affected by a revision of the sovereign's Outlook to Stable from Negative, accompanied by healthy debt (direct risk/current revenue) and debt coverage (direct risk/current balance) ratios.