OREANDA-NEWS. Fitch Ratings has affirmed Russian Stavropol Region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB' and its National Long-term rating at 'AA-(rus)' with Stable Outlooks. The Short-term foreign currency IDR has been affirmed at 'B'.

The affirmation reflects Fitch's unchanged baseline scenario regarding Stavropol's satisfactory operating performance amid stagnating operating revenue and moderate, albeit growing, direct risk with a smooth maturity profile. The ratings also factor in a persistent capex-driven budget deficit, moderate refinancing pressure and the region's below-national average wealth and economic indicators.

Fitch expects the region's direct risk will increase in 2014-2016 and will reach 50% of current revenue by end-2016 (2013: 29%), which is still moderate in the international context. The debt increase will be fuelled by a persistent budget deficit estimated at 7%-9% of total revenue in 2014-2016, driven by continuing high capex amid a deceleration of operating revenue and by the rigidity of the majority of operating expenditure. The latter are mostly social spending and include salaries of public employees and transfers to municipalities and residents under different social programmes.

Stavropol's socio-economic profile is historically weaker than that of the average Russian region and is dominated by agriculture and food processing. Its per capita gross regional product (GRP) was about 63% of the national median in 2012. However, the region's economy is less dependent on the external environment, which can prove volatile. The regional government expects average regional GDP growth of 2.7% p.a. in 2014-2016.

RATING SENSITIVITIES
A sustained sound operating balance at about 10% of operating revenue and debt coverage (2013: 3.6 years) in line with average maturity profile (2013: four years) would lead to an upgrade.

Weakening of the operating margin towards zero, coupled with an increase in direct risk above 50% of current revenue, would lead to a downgrade.