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 senior unsecured domestic bonds' (RU000A0JV2H4, RU000A0JTDV5) local currency long-term rating at 'BB' and National Long-term rating at 'AA-(rus)'.

KEY RATING DRIVERS
The ratings reflect Tomsk's moderate debt with manageable refinancing risk, still sound budgetary performance, high liquidity and strong self-financing capacity on capital outlays. The ratings also factor in the well-diversified local economy, supporting the low concentration of the city's tax base.

Fitch expects the city will maintain direct risk at a moderate level at about 30% of current revenue in 2015-2017 (2014: 29%). The city's administration intends to continue its prudent budgetary policy with close to balance budget and maintenance of stable debt. By end-January 2015 the city's debt stock was 72% composed of two to three-year bank loans followed by domestic bonds (21%) and budget loans (7%) contracted from the Tomsk region.

Fitch assesses Tomsk's exposure to refinancing risk as moderate. In 2015 the city faces repayment of RUB1bn maturing debt, which was 39% of its debt portfolio as of February 2015. Immediate refinancing risk is mitigated by the city's RUB594m contracted revolving credit lines and sound RUB465m cash reserves accumulated by February 2015 that in total cover all borrowing needs in 2015.

Fitch expects Tomsk to post a sound budgetary performance with an operating balance exceeding 10% of operating revenue and a minor budget deficit in 2015-2017. In 2014 the city recorded an operating margin of 13% (2013: 14%) and a surplus before debt variation of 0.2% of total revenue (2013: deficit 7.6%). The sound result was driven by a positive net effect of reallocation of expenditure responsibilities and revenue sources between municipal and regional budgets along with a continuing streamline of budget's spending by the city's administration.

Fitch expects the city will maintain capex at above 20% of total spending in the medium term (2014: 25%). Local administration intends to continue investing in Tomsk's economy. The decision is aided by the city's high self-financing capacity (current balance and capital revenue) which covered on average 95% of total capex in 2012-2014. Fitch expects the city's capex self-financing capacity will continue to be strong.

Tomsk has a well-diversified service-oriented economy influenced by academic and research educational institutions. The tax concentration of the city's revenue is low, with the top 10 taxpayers representing less than 10% of the total tax revenue received by the city in 2014. Fitch forecasts a 4% contraction of national GDP in 2015, and notes the city's economy is likely to be negatively affected by the national macroeconomic context leading to potential deceleration of tax revenue.

RATING SENSITIVITIES
Lengthening of the city's debt profile along with the maintenance of a 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 significantly exceeding the average maturity of debt would be negative for the ratings.