OREANDA-NEWS. Fitch Ratings has assigned Russian Ural Federal University (UrFU) a Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'BB+', a National Long-Term rating of 'AA(rus)' and a Short-term foreign currency IDR of 'B'. The Rating Outlooks on the Long-term ratings are Negative.

Fitch has classified UrFU as a dependent public sector entity (PSE) under its public-sector entities criteria. This is attributable to a strong link with a sponsor (the Russian Federation, BBB/Negative) derived from UrFU's legal status and its strong reliance on public funding. The Negative Outlook reflects that on the sovereign's ratings.

The ratings of UrFU are two notches lower than the sponsor's ratings due to its moderate integration into the federal budget and because its debt is not consolidated into general government debt. Fitch also considers strategic importance as moderately supportive factor for UrFU's credit quality given that higher education is a discretionary responsibility of the Russian federal government.

UrFU has a legal status of state-owned autonomous establishment founded by the federal government. UrFU is one of the 10 federal universities in Russia and was created through the decree of the federal government. The federal government controls UrFU's activities and property management, closely monitors the use of public funding and approves the large-scale transactions of the university through supervisory board.

UrFU strongly relies on public funding, and its financial performance is largely supported by the state grants. University is not-for-profit organisation and therefore performs at breakeven. Operating balance after contributions from the state hovered around zero in 2012-2013. Fitch expects the scale of state support to remain unchanged in 2014-2016.

Public funding comprise more than half of UrFU's operating revenue in 2013. The majority of current grants from the state (70%) is earmarked for rendering education services. Overall around half of almost 40,000 students receive support from the state. The remainder 30% of state grants finances research activity and social events. State grants are the main source for financing UrFU's investment needs as well. UrFU's own revenue mostly comprises tuition fees and income from research activity.

UrFU has no commercial debt as of end-2014, and according to Fitch base case scenario the university will not incur commercial debt in the medium term. UrFU has outstanding RUB38m non-market budget loan (less that 1% of total revenue) provided by Sverdlovsk regional government through the regional PSE JSC Ural Universuty Complex. The loan was due in 2011, but the creditor has never claimed the loan to be repaid and has never filed a suit. Fitch treats this loan as non-market internal transaction and does not consider this event as failure to meet debt obligation. According to the management the loan will likely to be settled in 2015 in accordance to local regulation.

RATING SENSITIVITIES
A downgrade of the sovereign's ratings would lead to URFU's downgrade. Weakening links with the sponsor visible primarily in material rise of commercial debt not guaranteed by the government or decline of state support as a result of legal status change, which is unlikely, could also lead to a downgrade.