OREANDA-NEWS. September 28, 2015. Fitch Ratings has affirmed Russian 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.

Fitch has also affirmed the region's senior unsecured bonds at long-term local currency of 'BBB-' and National Long-term 'AAA(rus)'.

The affirmation reflects Fitch's unchanged base line scenario regarding KMAR's ability to maintain sound operating performance and low debt commensurate with its ratings over the medium term.

KEY RATING DRIVERS

The region's ratings are constrained by the sovereign ratings (BBB-/Negative) of Russia. The 'BBB-' ratings reflect the region's low debt, sound fiscal performance, strong liquidity, and its robust oil and gas economy. The ratings also consider the concentration of the region's tax base in the prime sector, particularly given the current difficult economic environment in Russia.

Fitch expects KMAR to maintain debt at below 10% of current revenue, along with a favourable payback ratio (direct debt/current balance) of below one year in 2015-2017.

We expect the region to record sound fiscal performance over the medium term, with an operating surplus close to 10% and a moderate deficit before debt variation below 5% of total revenue. This follows a sharp rebound to an operating surplus of 20% in 2014 (versus our expectations of 6%) after an operating deficit of 4% in 2013. Sound fiscal performance is attributed to restored tax revenue, primarily driven by rouble devaluation and the tax regime for oil and gas companies.

KMAR's interim performance remains sound with a surplus before debt variation of 21% of total revenue at end-1H15 (1H14: 9%). Despite current low international oil prices local companies' output remains stable, contributing to strong tax revenues. The region reversed its financial position at end-2014 with a 7% surplus before debt variation, after a deficit of 21% a year earlier.

The region's interim cash position was strong with RUB59.7bn accumulated on accounts and in deposits as of end-August 2015; KMAR materially improved its cash position in 2014 with cash increasing to RUB22.6bn from RUB6.4bn a year earlier. KMAR returned to its net cash positive status, which it temporarily lost in 2013.

KMAR's economy is dominated by oil and gas companies, providing the region with a strong tax base. Taxes represented 94% of KMAR's operating revenue in 2014 (2013: 93%). Restored profitability of the oil and gas companies in 2014 aided the recovery of fiscal performance.

The concentrated tax base exposes the region to potential changes in the fiscal regime and business cycle or price fluctuations in the oil and gas sector. This is particularly true in the currently depressed economic environment in Russia, where Fitch expects 3.5% contraction of GDP in 2015.

RATING SENSITIVITIES
The ratings of KMAR are capped by the sovereign's. Changes to the sovereign ratings would result in corresponding action on KMAR's ratings.